All sellers need a market to work in and the sale of your business is no different. A good marketing strategy will heighten interest and boost value.
There’s no second bite of the cherry when selling up, and it is a risky process. You might be approached by a competitor ‘interested’ in buying, but then it turns out they are on a ‘fishing expedition’. Staff have the tendency to get nervous about their jobs and will need to be convinced the deal means a brighter future for them. Customers and clients are also likely to get the jitters and must also be treated with care, as your relationship with them will be a major part of the deal.
Can you do it yourself?
Before you go any further, you need to consider how and with whom you are going to go to market. You are always going to need lawyers and accountants, but some entrepreneurs choose to do the actual selling themselves. Others employ corporate business advisers to help prepare and market the business for them.
“We weren’t sure whether or not to use a corporate finance boutique or to do it ourselves,” says William Berry, who sold his first business, Thomas Charles, for £12.5m in 2006. “We chose the latter as we knew the people we were likely to sell to.”
However, Berry is now looking to sell another business, Accommodation for Students, and intends to use a corporate finance company this time as he thinks it can increase the price.
“Doing it yourself can be a bit awkward if there’s an earn out involved. It’s difficult hardballing the chief executive, then having to work for them,” he says.
Corporate finance boutiques will typically charge in two ways. First, there are fees for preparing the information memorandum – a weighty document that gives the lowdown on your company’s financial history, cashflow projections, assets, etc. Charges for this work can range from between £5,000 and £30,000 depending on the size and nature of your business. Following this, they will then put the word out on the deal and lead the negotiations.
After the deal has been completed, your adviser will take a cut of the share price. Exactly how much this is comes down to what you negotiate. Typically, it will be between 3% and 5% per £1m, although entrepreneurs sometimes like to think of ways to really incentivise their advisers. Sean Moriarty, of HW Corporate Finance, says there are many ways to construct a deal with an adviser. “Entrepreneurs tend to be imaginative and flexible when it comes to getting the structure of the deal right,” he says.
You know your market and will be able to name a number of potential bidders, so start making a shortlist. Consider how their businesses will be affected in terms of market share, geographical reach, control over suppliers, data and technology, if they bought you. Also, find out information about them – particularly if they are looking for targets to buy. Timing is crucial in selling your business, so at what point is the market right now? If a competitor is out on a shopping spree, then they will have the finances and hunger to acquire you. But if the market is stagnant, you aren’t going to get full value. David Burton was involved in the £33m sale of the Complete Group sealed last November. He knew it was the right time to deal.
“We got to the point where the venture capitalist wanted to realise their investment and we were getting unsolicited approaches from potential buyers, so we knew the time and the market was right,” he says.
Approaching buyers is tricky and finding out if they are interested in buying before revealing too much is important. There’s plenty of fishermen out there and this is another advantage of using an adviser, as it can place some distance between you and the prospect.
If you are going to conduct negotiations in the open, ensure a non-dislosure agreement (NDA) is in place first – and even then you need to accept that you are taking a risk when you are selling your business.
As Berry says: “The thing with NDAs is that they aren’t that useful. I think they are a good thing to do, but I have never heard of anyone who has been sued for breaching one. They are hard to enforce.”
It is possible to advertise the fact that your business is up for sale through the trade press, or much more limited but focused forms of media. Each local area has its own brokerages and accountancy firms, and many have periodical newsletters that carry details of businesses on the market. They won’t reveal your company name, but will carry enough information about you to attract interested parties.
In some cases, a business can be quite open about the fact that it wants to sell itself. Berry, for instance, is keen for people to know he is looking for a buyer. His staff numbers are small and he feels that it won’t have a detrimental effect on his company. This makes marketing the sale of your business easier. Prior to actually going to market, raising your profile is a good idea, as your buyers are always going to be more interested in a business that they’ve heard of. “The fact that we had a high profile really added value. It is worth getting a PR company in for the six months preceding the sale,” says Berry.
Competition between buyers can really lift the price. As Moriarty says: “I’ve seen deals where the initial bids have gone up by 35% by the time the final price has been agreed.”
Advisers play a key role in this and entrepreneurs should question whether it is one they should get involved in. In order to really bring up the price, you need a sense of competition akin to an auction. However, this might lead to a few noses being put out of joint.
“The adviser can play the bad guy, but you want to preserve the future relationship,” says Ed Bartlett, who sold his business The Hive to IGA Worldwide in return for a share in his acquirer. However, by keeping out of the fray, you keep your own personal reputation unblemished.
If you do use a corporate finance company, then ensure it has the necessary experience in your sector and is sufficiently incentivised.
However, whether you choose to employ them or not, the right mix of timing, market knowledge, profile and sense of competition is what will really lead to a successful sale.