Our guide to selling your company.
Why sell?
You are looking at a lifetime’s work. Think of the hours you are put into the company – the risks you have taken….
You and your family deserve to be rewarded for all the hard work you have put into founding and growing the company.
Most business owners are self -starters – typically they have spent 20 or more years business building their business. They may have achieved their vision, perhaps not – but the key is now the right time to capitalise on all the investment.
What drives a business owner to sell their business?
Research shows the main reasons are:
Retirement – or the desire for a change in lifestyle
Lack of time to really grow the business.
Fatigue – or health reasons
A burning desire to crystalise the investment and move on to new challenges.
The glass ceiling – the business has reached a performance plateau.
The Company needs new investment which the shareholders are unwilling to fund.
Why do some businesses fail to find a buyer?
Market statistics show:
75% of businesses fail to find a buyer.
50% of transactions fall through between Offer and Completion
What contributes to such a high failure rate?
There are a number of factors. The main ones are:
Poor preparation / Advice
Lack of effective market research
Over dependence on business owner to manage the company
Business performance – profits too low
When is the right time to sell?
Ideally sell with 3 years of real growth potential left in the business.
You need to spend at least 12 months preparing the company for sale – working with your advisors.
Ask yourself a few honest questions:
Is the business really growing or standing still after inflation?
How dependent are you on the sale proceeds to fund your retirement?
Can the management team really run the business if you are not around?
Are there gaps in the team which the new owners will need to fill?
Have you repaid debt where you can – particularly Bounce back loans?
What do successful acquirers look for?
Business buyers look at maintainable earnings.
How will profits look under their ownership?
They will look critically at the company – and ask fundamental questions:
How resilient is the business model?
How is the business performing vs. competitors?
How fast is the business growing when you strip out inflation?
Is the business over-reliant on the owner?
What synergy benefits / cost savings can they extract from the deal?
What are the motives that lead a company to risk capital and make an acquisition?
Corporate acquirers will have different motives –but the main reason for making a strategic acquisition is to achieve faster growth.
Organic growth in most markets takes time – it’s hard work – whilst with the right acquisition a buyer can achieve the equivalent of perhaps 5 years organic growth in one step…
Other key motives are:
To buy or increase market share.
Your customers –synergy benefits / cross selling opportunities
The brand, its reputationand products
Overcome barriers to entry – geographic or market sector.
Strategic investors / buyers
Some companies are on a ‘Buy and Build’ strategy – typically with outside investment from private equity. Their investors are looking for a 3–5-year plan to build the group from say £5m sales to £50m with a target to achieve a return of perhaps 3-4 times their original investment.
An established PE backed group will be seeking above average growth, niche products and very strong market potential. They are hard negotiators and will be quick to make changes to the management team – particularly if they think they are under performing ….
Sequel Partners – who are we?
We are Chartered Accountants who are Northwest based and specialise in growth focussed smaller companies.
Our expertise lies in helping clients make the right strategic choices – whether it be helping support their growth plans with our Smart Vision and Virtual Finance Director programmes or advising on Exit Planning. We can also advise and support acquirers with deal origination and financial due diligence.
We are active in the following business sectors:
Software and IT services
Advanced / specialist manufacturing
Commercial hire / contract rental
Business support services
We help prepare the company for sale, advise on tax planning and support the business throughout the sale process – working alongside lawyers and other specialists.
How can we ensure you are not one of the 75% of businesses that fails to find a buyer?
Our 8 - step exit planning process
We have built a 8-step process which is outlined below. These are 8 discrete stages form start to finish – and the key is getting each step right – and not trying to short circuit the process.
1> The initial Fact find.
A detailed overview which we prepare from your financials, shareholder information and management data. We need to complete a financial overview which highlights trends and key performance indicators.
2> The director / shareholder meeting which will normally take around 2 hours. This builds on the fact find and goes into much more detail. We discuss shareholder objectives and outlines the sale process. Barriers to sale and management issues will be covered and we can give our initial thoughts on valuation based on the current market. After this meeting we will prepare a Scorecard which ranks the key factors to determine Readiness to Sell..
3> A full 3-hour meeting will normally be heldwith a full discussion on Readiness to Exit, Pre-sale planning, timescales, tax aspects and any personal issues. This will cover owner dependence, an initial assessment of the strength of the management team and any gaps. At this meeting we will present our Mandate and Fee Proposal which is strongly incentivised towards maximising the sale price. Approximately 50% of our fees are success based.
4> The Information Memorandum
This is a key document which describes the business, its background and gives prospective buyers an overview of the opportunity. The emphasis is upon benefits to a new owner not just a list of features.
Typically the IM runs to around 30 pages plus appendices.The IM willhelp prospective buyers determine whether they wish to progress to the meeting stage – it gives the buyers background information and helps set an agenda for the meetings with prospective buyers.
5> Research
Working with the shareholders and our extensive network of corporate finance contacts, we will undertake market research into potential purchases. This will include desk research and liaising with regional advisors. Our database is extensive, and we each extends to Ireland and mainland Europe.
We will summarise a list of potential acquirers for review with the shareholders. Names will be added / subtracted to ensure that they are 100% happy with the list.
Contact will be madein confidence via Linkedin Sales Navigator or telephone. We never disclose the name of the company without prior approval.
Selected parties will receive the Information Memorandum once non-disclosure letters have been exchanged.
6> The meeting stage.
We will host meetings with selected parties either by Zoom / Teams or at an offsite location. This process can take a few months and is crucial in terms of building an understanding of the business and creating the right chemistry between the parties.
Ideally, we aim to receive 2 - 3 competing offers, which gives an opportunity for competitive bidding. Subject to proof of funding the preferred offer should move forward to Heads of Agreement.
7> Heads of Agreement
Heads of Agreement are non-binding (except for confidentiality and exclusivity). They summarise the main terms of the offer and give external advisors clear terms to work with.
It is normal to appoint legal advisors prior to signing heads of agreement.
8> Contract stage and due diligence.
Once heads have been signed, both parties will proceed to contract.The Sale and Purchase Agreement will be drafted by the purchaser’s solicitors. The agreement will be supported by detailed warranties and tax indemnities.
During this period the purchaser will wish to undertake financial due diligence on the business and the seller will populate a data room with all key documents which form part of the due diligence process.
There are often side contacts such as consultancies for the retiring directors, new leases and loan notes if part of the consideration for the sale is to be deferred.
The next stage
If you’d like to arrange a meeting or would like to discuss your exit plans please call Tim Bowler on 0776 8060 955 or by email at tbowler@sequelpartners.co.uk