Margaret Evans, Head of Corporate Law discusses finding a buyer in the part 5 of The Selling Process Series.
In the first of 2 articles in this Part 3 we look at preparing your business for that sale. Unless there is guaranteed family succession, sooner or later every business comes up for sale. It is never too early to start preparing the business for sale and building a comprehensive file of the data which a potential buyer will require, and which can help you to achieve the best price.
It is recommended that the process starts anything from two to five years before a potential deal.
Certainly, key advisers need to be identified well in advance of any process and a strategy agreed to raise the profile of the company, either by using a specialist public relations adviser or by increasing your own networking efforts.
Careful preparation well before the sale process begins ensures that the process does not get in the way of the everyday running of your business. It is not uncommon for a business’ performance to drop sharply during a sale because management’s time is fully engaged in meeting the requirements of the sale process. This can, of course, have an impact on the final price.
The real work in preparing your business for sale starts the day you launch or acquire it. You need progressively to put the business in shape to deliver the best performance by maximising revenue and profit on an appropriate cost base.
If the business is performing well and you have the paper trail to document its performance, to show that:
- equipment is well-maintained,
- contracts are in order and
- that there is no outstanding litigation or
- other serious issues.
You will be ready to take advantage of the right opportunities at the right time.
The opportune moment can be affected by the general state of the economy, the performance of your sector or sales cycles and seasonal profit fluctuations in your company. In general, it is easier for a trade buyer to fund an acquisition when their own business is prospering, interest rates are low and banks are eager to lend.
When the eventual inevitability of a sale crystallises into an objective, even a distant one, decide what sort of help you will need to achieve the best price.
For a business with a sale value of under £5m, some sellers may consider using a business broker, but larger businesses usually find it is worth running a full sales process with a team of experienced advisers.
The cornerstone of that team if you wish to appoint a broker is usually a corporate finance adviser.
Your team of advisors, including your legal and accountancy team, will work together with you through the sale process helping you to navigate that process whilst also concentrating on the day to day continued running of your business.
A corporate finance adviser will assist you to find and vet potential buyers, in addition to any you may be able to suggest. He or she can provide a target list for your approval which may include overseas buyers or companies not operating in your sector but a related one, perhaps selling different products or services to the same customers.
They should make sure that they and you understand the key selling messages you will need to communicate clearly. Remember no one buys a company’s history, however comforting; they only buy its future.
Your adviser’s exploration of the market should ideally yield a list of about half a dozen parties who have expressed an interest. In consultation with you, this can be narrowed down to three or four to take forward to the next stage. No other factor maximises the value of your business more than having competition among potential buyers.
At this stage, the chosen bidders will receive information under a confidentiality agreement which would identify your company, charts its history and forecasts its future. This is the shop window for your company, a key selling tool but, while not legally binding, it should be accurate. Your adviser will help you to strike the balance between presenting the facts in the best light and counter-productive spin.
It is also important that you choose someone you will feel comfortable working with. Selling your business is a stressful time and you need empathy as well as expertise from your adviser.
It is no exaggeration to say that choosing the right adviser and professional team is crucial to achieving the best outcome for you.
How much will it cost to employ a broker? The answer depends upon the complexity and duration of any process. Many advisers charge at an hourly rate or fixed up-front fees. You may be able to negotiate a fee for the whole process, perhaps including a success fee linked to the price you achieve. Make sure you understand what is covered and what is not covered by any fee structure you agree to avoid unpleasant surprises.
However, it is worth remembering that a cheap adviser is the one who gets you the price that meets or exceeds your expectations and an expensive adviser is the one who fails to achieve your agreed target price or, indeed, any sale at all, no matter what their comparable fees are.
Alongside your corporate adviser, you will also need a lawyer, whose role is to document the acquisition, a process which often requires negotiation with the buyer’s legal team on important contractual matters, including such thing as Warranties and Indemnities which may have a post sale impact on you.
Our team at FDR Law is well versed in acting for both sellers and buyers and can work closely with you to deliver the best results for you.
If you are looking to appoint your legal team or if you want any more information or if you are considering an exit strategy and want some legal advice and assistance then please contact our Head of Corporate, Margaret Evans, Margaret.email@example.com or ring Margaret or another member of our commercial team on 01925 230 000 or visit our website on www.fdrlaw.co.uk
**This article does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest. Specialist legal advice should always be sought in any particular case **