Getting the best result when selling your business

Selling your business is likely to be one of the biggest challenges you take on. Getting the best result requires planning, hard work and skill. In our Exit Focus series we lead you through the process and explain the main steps, from positioning the business for sale, through to doing the deal.

Our Mergers and Acquisitions (M&A) team supports everyone from large multinationals through to small private businesses, with expertise across a broad range of industry sectors. We’ve advised on over 3,000 deals in the past ten years and in this article we share our thoughts on what you’ll need to consider when selling your business.

Positioning your business

Before you start, sit down and make sure you have a thorough and clear understanding of your personal and business priorities. Only when you’ve defined these can you be sure which exit option suits you.

In our experience, the emotional and personal issues are often more difficult to resolve than the business and financial issues. You need to address sensitive family issues before you look at the business challenges.

Early planning and preparation helps. For example, the increase last year in the lifetime entrepreneur’s relief allowance to £5m with the rate of capital gains tax qualifying at 10% could save up to £900k per person. But bear in mind there’s a 12-month ownership period you have to meet to qualify before the sale of shares is allowed.

You also need to give yourself time to get your finances in order and to be sure that your strategy makes sense and delivers growth. Your management team and the way they control the business, needs to be strong and you have to be able to withstand the scrutiny of a sale process.

Finding the right buyer

One of the first things you need to decide is whether to keep the business in the family. Transferring your business to the next generation is often more a matter of estate and tax planning than structuring a deal. Advice from a tax expert will help you avoid the pitfalls here and achieve a tax-efficient result.

If you’re going to sell to a third party then strategic buyers will look for a good fit between your business and theirs. They’ll look for access to new markets, opportunities to increase their market share, or to acquire expertise or intellectual property. Where there are significant synergies between two businesses, strategic buyers might be prepared to pay a premium price.

Almost four in ten deals we advise on involve an international party. We’re increasingly seeing trade players from continental Europe, Asia, North and South America, who are keen to buy businesses in the UK. Using an adviser who has the ability to identify buyers beyond the obvious ones, including international buyers, will significantly increase your options.

Financial buyers include private equity houses, venture capital and investment funds. They look for businesses where there’s a strong growth story and where the business will generate cash in order to service and repay any bank borrowing used to part fund the purchase price. They’ll also look for businesses which can, in the medium term, be positioned as a strategic asset, which they can sell and make a capital gain.

Going public may sound attractive but the costs of an initial public stock offering (IPO) are high and the regulations around listed companies are significant.

Preparing your business for sale

Increasingly, vendors are engaging due diligence experts rather than leaving the due diligence to be commissioned by the buyers. Part of the logic of using vendor due diligence (VDD) is that it gives the vendor greater control over the sale process. With VDD there isn’t the need to give any buyer an extended period of exclusivity to do their own due diligence, which isn’t then available to others. The VDD does need to be carried out by a firm whose independence will be respected by buyers. Otherwise there’s a risk it will be seen as a sales document.

Doing the deal

Now is the time to reflect on whether the transaction is still likely to meet your objectives. Has anything come to light that means now may not be the right time to sell? Have developments relating to possible buyers, or the regulatory environment, shifted in a way that might reduce your chances of success? If you decide that now’s the right time, you need to focus on maintaining control of the sale process and the timescale.

You may use a one page profile or ‘teaser’ to confirm appetite from buyers and possibly refine your likely buyer group. A management presentation that excites buyers and provides the information they need will be critical. But don’t overload buyers with information or share commercially sensitive information which might damage your business.

Work with your adviser and their experience of other sales processes. A transaction may need an information memorandum (IM) which provides quite comprehensive details around the market, the business and the forecasts for future growth.

Unpleasant surprises can derail a transaction. All the players on your team – both internal managers and external advisers – must communicate and reinforce the same messages. Building a relationship and trust with the buyer increases the chances of a successful result.

As you come to the end of the process, reconsider whether the deal meets the objectives you defined at the outset. Price and deliverability will be important considerations. An experienced deal adviser can work with you to help you understand both and add significant value during the final stages of negotiation, as well as absorb some of the pressure.

Here to help

Clients value the support we give them, whether this is M&A advice where we’re managing the sale process, transaction support work in the form of due diligence, or tax or legal advice. You can download our Exit Focus booklets from our website at:

www.pwc.co.uk/eng/publications/exit_focus_series.html

If you’d like to talk to us about your planned exit strategy, you can contact Stuart Warriner via email or telephone him on 0113 289 4514.