Services img Selling a business

Overview

The sale of a company is an important and complex transaction. For the shareholders it represents the culmination of many years hard work and the realistic prospect of financial independence. For a corporate, although perhaps more dispassionate, selling a subsidiary or division is often a milestone in strategic direction. Appointing a seasoned and experienced adviser will:

  • In the case of an owner manager, provide an experienced deal doer to lead you through the process, maximise the deliverable value and take as much of the burden as possible in a time consuming and often emotional process.

  • In the case of a corporate, provide experienced and dedicated resource to allow senior management and/or corporate development to spend time growing the core business.

Exit Routes

Having considered the motives and objectives of the vendors and matched them to the art of the possible, before embarking on a sale process, it is important to consider all exit routes. These are:

  • The sale of a business to its management team by way of a management buy out (MBO) or with the injection of additional incoming management resource, by way of a management buy in (MBI). This can be attractive as it keeps the process discrete and confidential and can reward the incumbent team for many years of hard work. However:

    • Key issue - This route only works if the business has the financial and market charateristics which are attractive to private equity and debt funders. The Management team must have the appetite for it and be prepared to invest in the business. It also creates a conflict of interest between the vendor and management team and trade buyers will often decline to bid against the management team.

    • Solution - Consider an MBO first or last ie before or after speaking with trade buyers. Alternatively, undertake a Vendor initiated management buy out (VIMBO) as part of a twin track sale process. A "twin track" sale process involves the vendors advisers contacting trade perchasers and private equity purchasers in parallel rather than allowing the management team to approach private equity directly. For more details on how this works, please contact us.

  • The sale of a minority stake to a financial institution to unlock some capital value and de-risk the vendor’s financial exposure to the business but maintaining management control.

    • Key issue - Having an external shareholder or funder means giving up some control and having to report on the business. It also means having another party with an agenda for the next exit event and ultimately, if the business were to significantly under perform the vendor will cede control to the investor.

    • Solution - Selecting the right investor and agreeing key terms with them, including an aligned strategy to allow you to exit the business at the next stage is key. Negotiate these points before granting exclusivity.

  • A stock market flotation on a main market or the Alternative Investment Market (“AIM”)

    • Key issue - As a general rule, on flotation, the market will only invest in a business if it is presented with a growth story in an attractive sector and at least half of the money being raised is to fund growth rather than cash out the vendors. Once a public company, the vendor’s remaining shares are subject to the share price on the market, orderly marketing agreements and regular reporting.

    • Solution - A stock market flotation is only the first stage in an exit process and is of more benefit to raise capital for growth. As long as you go into it with your eyes open and it satisfies the shareholder objectives, it can be considered.

The sale process

There are several different methodologies for the sale of a business including:

  • Controlled Auctions - mostly used by investment banks and accountancy firms for larger businesses.

  • Covert or "discrete auctions" - most suited to smaller unquoted businesses.

  • Business broking - where often over a hundred or so potential purchasers are bombarded with emails or faxes about a business. This works best for the smallest of businesses.

Succession undertakes covert and controlled auctions for clients. As part of the process, it is important to consider both worldwide trade purchasers and financial purchasers, particularly if the management team in the business has expressed an interest in a MBO. In these circumstances, we will embark on a twin track auction process.

There are always four key stages to the selling process as follows:

  1. Preparation (typically c 6 weeks)
    The preparation phase comprises:

    • Undertaking a full research exercise into worldwide potential purchasers, presenting a purchaser report and agree a shortlist of purchasers.

    • Providing the client with an honest view of valuation based on benchmarking multiples, purchaser appetite and many years experience.

    • Visiting and getting under the skin of the business.

    • Write a short information memorandum/information pack.

    • Prepare a management presentation and rehearsal.

    • Consider whether or not vendor due diligence/data room is appropriate and implementing it if so.

  2. Marketing Stage (typically c 8-10 weeks)
    The marketing stage comprises:

    • Contacting the agreed short list purchasers, by telephone with a no names description of the potential opportunity.

    • Sending out information memorandum/information packs on receipt of signed confidentiality letter or NDA (Non disclosure agreement).

    • Meeting with interested purchasers off-site to present the business.

    • Provide further information as required.

    • The whole process is proactively managed with regular reporting to the client.

  3. Negotiation Stage (typically c 4 weeks)
    Having met with the shortlist of buyers and provided them with such additional information that is reasonable and not too commercially sensitive, then we:

    • Receive written conditional offers.

    • Provide such further information and/or arrange discreet site visits for the favoured purchasers.

    • Negotiate the offers with all parties and ask each to submit a revised and improved second offer.

    • Select preferred party, sign Heads of Terms with detailed timetable to completion.

  4. Transaction Management Stage (typically c 6 weeks)
    There is then a busy period involving:

    • Agreement and negotiation of legal documents, including a sale and purchase agreement, disclosure letter, tax deed of indemnity and other ancillary documents.

    • Due diligence process - financial, commercial, legal, environmental, pensions and some other areas. Succession proactively manages this whole process and assists in the selection of your other advisers as appropriate.



The Succession top tips to a successful sale processs

  • Select the most appropriate exit methodology for your business and appoint advisers where the deal leader working with you is experienced, skilled and has a genuine interest in your business.

  • Be prepared and only commit to selling the business if you are serious about it.

  • Only approach a pre-selected short list of known serious parties and avoid 'tyre kickers'.

  • Spend time pro-actively selling the opportunity to buyers, including hidden gold and future opportunities - seduce a buyer rather than bully then - whilst keeping them keen by confirming it is a competitive process.

  • Be honest - if there is a skeleton, address it up front otherwise it will come back to haunt you.

  • Never give an asking price to a trade purchaser - ask them to go first.

  • A carefully negotiated heads of agreement avoids any misunderstanding or uncertainty during the transaction phase.

  • Try to enjoy the experience, even if it is a rollercoaster ride.

Which exit route is right for you key stages in the selling process