Now the recession is over you may at last be wanting to exit your business and realising the Enterprise Value you have painstakingly built up over the years.
Here are ten key tips to preparing that road to maximising value on disposal, lovingly prepared by someone that has bought 23 businesses in 19 countries and has learnt from bitter experience.
1. Get the stakeholders in line!
Ensure you have rigorous shareholder /stakeholder agreements in place that are legally binding. Agree particularly on acceptable post-tax revenues on exit for each individual. Look closely at drag along/pull along clauses. Decide what each member wants to do post-sale.
People change their behaviours when personal money is involved, especially at this sort of level – expect the unexpected, particularly with family members. Don’t allow multiple negotiators. If possible – buy people out early.
2. Start networking with potential acquirers
Less than 8% of deals reach conclusion when you have to find the buyer from a beauty parade.
Don’t advertise your business for sale, it shows over-keeness and will lead to a poor negotiating position.
Categorise three tiers of potential buyer, your customers/suppliers/competitors; your industry; the unexpected investor – and start to informally and formally network using phrases such as ‘a mutually beneficial discussion’.
Let your acquirers find you.
3. Smooth your curves!
Ensure your figures look believable. Buyers buy history – not the future - so start smoothing your curves now. Difficult to explain blips will reduce the selling price. Make your story look consistent. Extract one-off costs from your accounting package to demonstrate a continuing position.
Do some of the synergistic work that the acquirer might want to see, such as discontinuing costs post-sale.
Make sure the last five years figures tell a compelling story with a logical flow. Demonstrate that the business encounters few, if any, surprises.
4. Watch your capital Investment
Only invest in capital where the returns will pay back to you. That is short pay-back periods which will add to profits and therefore mutliples pre-sale, or will be reflected in valuation at sale.
It is no good investing in something which will not be recognised on disposal. Better to highlight the opportunity to the potential acquirer. Stop going to exhibitions and conferences.
5. Address issues that will affect perceived value
Start to address issues now that will detract from realisable value on exit. Quality, customer and liability issues need to be resolved so you present a clean a profile as possible. Don’t leave skeletons in the cupboard – the warranties will come back to haunt you.
6. Keep memoranda short on detail
If you feel you have to publish an Information Memorandum, keep the detail out. Don’t give your competition ammunition to fire back at you. And don’t make it look like your selling.
Stick to the basic facts and encourage people to talk to you in confidence if they’re interested.
Most people that get IMs are free-loaders.
7. Develop a continual improvement process
Don’t stop running the business. Keep developing medium term plans with appropriate continuous improvement programmes. No-one buys perfection. Make sure you have a comprehensive and sophisticated schedule of organisational, operational and profitability improvement over the next five years. Ensure you are keeping a watching eye over people and their retention and succession planning. Look at their contracts and make sure they can be tied-in or let go easily by you or any potential acquirer. Review retention incentive schemes.
8. Behave as if you’re not selling
Develop a Plan B. What would you do if you didn’t sell? Prepare yourself and your colleagues as if you didn’t sell. Keep attending meetings. Don’t change your management style. Don’t stop creating. Don’t tell your staff that a sale is on the cards. Deals can – and often do- fall apart in the last hours before agreement. Be excited about retaining the business and running it for another ten years!
9. Leave stuff to do!
Don’t window dress to perfection. Buyers are looking for synergies, so leave them something to go at. Phrases like ‘we didn’t really have much time to look at the French market, but there is real potential there’ go down well.
Of course you should try and get the appropriate value for such pearls of wisdom.
10. Make sure your professionals are contracted properly
Plan, budget and save now for the enormous costs of the professional help you will need. These costs seem to grow their own legs and can run away with you. Don’t think you can do it on the cheap or do it yourself – you will come unstuck. Find recommendations and make contact early. Try to get some fees at least part contingent.
Make sure the people you pay actually work for you. Don’t allow what is essentially your process to be hi-jacked by jargon. That will cost a lot.
- Malcolm Smith on Negotation
- Case Study: Preparing the Business for Sale: Paul Wrightman ex-owner MD of TeamSport