Planning and executing a company sale
Deals are rarely simple and straightforward but it is possible to draw on past experience to chart a way forward to give the best chance for business owners to achieve a successful exit. Tim Sadka, Corporate & Commercial Partner, provides sellers with some well-established best practice steps:
Review and challenge owner assumptions internally and with external advisors before initiating the selling process . Businesses with exceptional management, independent of the owners, are usually easier to sell.
Get the best professional advice
Business owners should ensure the business has sound legal, financial and corporate finance advisors in place. They should be used to supporting businesses prepare for sale and who have the experience and capability to lead and support what can often be a challenging sale process. Good advisors will anticipate and manage the process reducing the stress and uncertainties of the sale process, more likely to achieve positive outcomes. Track records count.
Review the business structure
Review the corporate structure and address any issues between shareholders and the business. For example, are the business premises owned by the shareholders? Are formal lease agreements in place, are they fit for purpose? Are any arrangements acceptable to an owner-managed business but unlikely to be so to an arm’s length buyer?
Consider removing any unsuitable arrangements so they do not divert focus when any formal due diligence process with a buyer commences. By having the right structures in place and understanding the context where your business sits, shareholders will be better able to present a business for sale.
The business is likely to be more desirable to potential buyers if you differentiate the business from competitors and present a positive history of profitability and development. With corporate finance advice, understand the market in the UK and further afield to give the best opportunity to maximise value. It will be easier to achieve full value with positive differentiation and understanding the business and its place in the marketplace.
Business process & operations
A well-run business with strong processes and systems is likely to add value when seeking an exit, and will defend against the usual buyer advisor propensity to look to erode the purchase price justified on the back of adverse due diligence. It pays to have management controls in place, and to hold regular board and senior management meetings.
Financial systems & control
The most common failing for companies subject to buyer due diligence is that financial systems and reporting are not up to scratch. To avoid purchase price erosion, have strong financial systems in place and be able to produce and update standard reports, with ability to be flexible over format and content to meet buyer presentation requirements. Management accounts should exist and be produced regularly on a timely basis. That way, all of a company’s forecasting is measured, based on real data.
Wherever possible, look to corporate finance advice to lead the formal sales process. A fuller value is more likely to be achieved where a process has been developed that invites multiple interest.
Appointing advisors who know what they are doing is half the job done. To complete the job, remember to trust your advisors and take advice when it is given. An exit, and the terms to be agreed, are ultimately for the shareholders but keep in mind that your advisors will be speaking from a wealth of experience negotiating transactions. If you have appointed the right advisors, at least listen to them and take account of that advice.
Timing of the sale
In all but a few cases, the sale process, and the planning leading to a process to get ready for a sale of a reasonably sized business, can take as much as 12 to 18 months. In our experience, clients need time to look honestly and comprehensively at their business and time can pass quickly. It should be possible for the corporate finance advisor to produce a recommended approach to the market and for the business to be ready for that process well within such a timeframe.
Given the challenges buyers can face raising funds for transactions, and the risk averse nature of the potential buyer market, even once a preferred buyer is identified and outline terms agreed sellers should allow for an extended process. It used to be the case that once heads of agreement were agreed, subject to due diligence and contract, that the timetable to completion would be a 6-8 week period. In our experience such a timetable is possible, but especially where the business is not ready, and/or where the buyer requires outside finance, timetables can be stretched. From heads of agreement, it is not uncommon to see transactions taking 6-9 months, sometimes longer, to complete. Forewarned is forearmed.
If you require further information, please contact Tim Sadka at firstname.lastname@example.org or call him on 0800 276 115; he will be pleased to be of service. Alternatively, please contact us at email@example.com.
The information contained in this communication is for information purposes only and is not intended to constitute legal advice by the author and Rix & Kay Solicitors LLP. No reliance should be placed on the content and if contemplating acting in reliance on the content then, before doing so, legal advice should be sought.
Rix & Kay Solicitors LLP has offices across the South East, in Sussex and Kent.
© Rix & Kay Solicitors LLP October 2019