6.5 min read
The ‘perfect’ business sale – a fast, fuss-free transaction on the right terms with the right buyers, with a rewarding journey afterwards and no sting in the tail. The ‘perfect’ business sale is ‘easy to define but hard to align’.
Despite the huge distraction caused by the COVID crisis, buyers are still highly active as they continue to refresh business models and look to create increased yields. There is plenty of money, but too few opportunities. Valuations for businesses have held despite the pandemic and post-lockdown models are continuing to drive deals.
Many sellers are also choosing to act with the prospect of more tax hikes on Capital Gains looming – possibly doubling in April 2021 (or sooner). If you are considering a business sale, now may be the time, regardless of COVID uncertainty.
In the next few weeks, we thought we would share with you our top five steps to achieve the ‘perfect’ business sale.
- Sale preparation (Value build | Data-rooms | Information preparation | Positioning | Timing)
- Market presentation (Advisors | Research | Marketing | Buyer Types | Approach)
- Creating competition (Auction | Negotiation | Deal Structures | The best buyer)
- Completion (Due Diligence | Financial & Legal | Timeline | Project Management | Handover)
- What next? (Earn-outs | Wealth | Tax | Next steps | The journey)
Week One – Sale Preparation
(Value build | Marketing data-rooms | Information preparation | Positioning | Timing)
In this first article of the series, we examine the vital sale preparation to achieve the ‘perfect’ business sale. Values are predominantly driven by yield, growth prospects and risk. These aspects should be central to both your strategy pre-sale and the information you provide for the sale. Here are our top five steps to prepare for sale which typically we would help you with as part of our engagement process:
1. Value build
This involves a review of your current business strategy prior to a sale. How can your business stand out against the competition? Which areas of the market that are growing should you focus on? How can you reduce income risk by increasing recurring revenues or pushing into a more diverse client base?
Productivity is also central to success. How do you increase margin, despite volatility? Examine three areas; firstly, a cost-reduction exercise; secondly, investment in technology and your IT platform; and finally, look at your key suppliers. Productivity needs to be team-driven as a business dependent on owner-managers is perceived as higher risk by potential acquirers.
2. Marketing data-rooms
The ‘perfect’ business sale is about creating a ‘we want, we need’ motivation in buyers. This needs to be done both globally and virtually to create competition and bids and is best carried out in a marketing data room. You have a great service and excellent reputation, but buyers want to see yield and ultimately growth, demonstrated by accounts, research, data, and realistic forecasts. A well-crafted data room can showcase your business and anyway getting your dashboards right is central to business growth.
3. Information preparation
Do your own vendor due diligence on your organisation. Buyers will carry out an in-depth exploration of all aspects of your business – commercial, legal, cultural, and financial. By collating this information upfront, you not only create a better marketing data room, but you can also prepare for buyer questions and enquiries and any issues can be identified and addressed early in the process. It is important to note that real-time financial information, particularly on work-in-progress, is critical. Business valuations are employing forecasts more than ever post COVID.
Buyers will be influenced by presentation and accuracy with the balance of information versus presentation well-honed. Ultimately, the best value is achieved when you can demonstrate your business is unique and ahead of the market in pull. Pull is where customers seek you out, whereas push is where you have a high cost per acquisition. Can you position your business ahead of market demand in a growth niche where there is minimal competition? Whilst this may seem a long play, some aspects can be invested in quickly pre-sale. The question ‘what’s in it’ for the acquirer should be central.
Choosing when to sell is a balance of the external market, shareholder motivations and growth prospects for your business. The ‘perfect’ business sale will be at the peak of the market in the existing cycle, ideally to a buyer that can further capitalise on the business – your age and lifestyle requirements will also have a bearing. Right now, there is a window of opportunity with benign capital gains rates, although one should never be driven solely by tax and your primary personal and business purpose should be considered. The ‘should I stay, or should I go?’ question should be driven by what your current and future ambitions are. If there is one thing COVID has taught us it is that there is more to life than just work.
In week two of The ‘Perfect ‘ Business Sale, we examine how best to present your business to market.
If you would like to discuss in confidence any aspect of our services or advice please contact us on +44 (0)1737 240888 or email firstname.lastname@example.org.
For information on other webinars within the series, visit our Webinars & Events page.