Keeping the deal on the railsFollow @PwC_North
Continued uncertainty and volatility in the economy suggests that it may be a difficult time to sell a business. However, here in the North, we are seeing deals being completed and attractive multiples being achieved where a well planned sale process is employed.
Valuation multiples can be particularly attractive in two scenarios:
1. Where trade buyers are willing to pay a strategic price now, for synergies and market access. To access this potential generally requires a proactive, confidential and planned process of market testing by sellers, especially to unlock overseas interest.
2. The business has a strong growth profile that enables financial investors to pay a compelling multiple, even with conservative gearing. There is still a wall of private equity funds needing investment, but a lack of debt and quality investment opportunities.
Whether you are responding to an unsolicited approach or you are considering commencing a sales process, one piece of advice remains – the more you plan and prepare for exit, the greater the value – so start planning early. Below we highlight some of the key pitfalls to avoid in a sales process:
- Businesses are increasingly being approached off-market, which can result in shareholders and management being caught off-guard. Without consultation with experienced corporate finance advisors, value may be eroded by the incorrect presentation of information, lack of negotiation strategy and a poorly run process.
- Competitive sales processes which are not tailored appropriately for the audience, specifically when the likely buyers are overseas trade players. Some buyers, particularly in emerging markets, are unwilling to participate in auction processes until they have had the opportunity and time to understand the asset on offer.
- Deals can often reach a stalemate if black holes are identified during due diligence, in particular: defined benefit pension liabilities; ongoing legal disputes; environmental liabilities; vacant properties; and tax exposures. In carve out situations, there can often be a lack of clarity over what is included or excluded in the business being disposed of and this can erode buyer confidence, particularly later in a process if they perceive they are getting less than they based their offer on.
- Vendors may set unrealistic timetables, which they often cannot meet due to a lack of resources to prepare the information required by potential buyers. This then results in an iterative process in order for interested parties to receive sufficient insight into the business – and can often end in buyers becoming frustrated and walking away.
- Current trading results falling below forecast, resulting in a deterioration in confidence from interested parties.
- Lack of clear understanding and explanation as to why the business has performed above or below the market in recent periods.
PwC’s North Deal Team includes a range of dedicated “deal doers”, including specialists in corporate finance, vendor assistance and vendor due diligence. Please contact a member of the team should you wish to discuss how we can support you in planning and getting the maximum value for your deal.
Contact: Andy Parker on 0161 245 2388 or at firstname.lastname@example.org