Selling your business for all it is worth.!
Many company owners think there's some sort of mystique to it - which is not true. When the simple principles of effectively marketing a company are explained, most people are surprised by its simplicity. Many shareholders are fully aware of the various benefits and selling points of their products or services, but often don't give much thought to their single biggest asset - their business.
First of all when we are involved in helping sell a company, we take a detailed brief from the vendor. This gives us a good understanding of the company, its future potential and what type of buyers may be interested.
The process is then broken down into five stages:
- Intensive research, whereby we locate a large number of companies that 'might' be interested. We also draft an "Information Memorandum" (IM) or summary of the benefits of the company.
- When the research list and IM have been approved we then contact each of the companies. A summary of the offer is then presented to the decision maker.
- After the prospect has had sufficient time to assess the IM they are called and asked whether they are still interested. Those that are not interested are asked to return the IM and those that are interested are invited to a meeting with the vendor - which is chaired by a negotiator.
- Following the meetings we will actively process each prospect to generate offers.
Traditional valuation methods are flawed. Why?
In the real "cut & thrust" M&A world, three things dictate the value of a company;
- The level of (perceived) risk which the buyer feels he will be taking;
- The level of return (future profits) which the acquisition is likely to achieve;
- The number of bidders (investor competition).
Add to that the top person in a large company, or group, is often highly entrepreneurial and tend to look beyond the simple 'historic earnings' and are usually more 'future potential' orientated. In my experience, "accountants value companies but entrepreneurs buy them".
On average we find that the highest offer is about two and a half times higher than the lowest offer. If it was a case of simple mathematical formulas, most offers would be within a few percentage points of each other - but this is simply not the case.
At what point do most vendors come to a specialist?
All sorts of reasons, too many to list. However, I guess the main comments I tend to hear are: "I'm bored of the job - I used to be an entrepreneur, but now I'm just a manager" or "I've taken the company as far as I can, but now it needs to be part of a larger setup for it to achieve its full potential".
How prepared are most vendors for a sale?
In many cases if a company is not 'perfectly groomed and ready', so to speak, then it may be very appropriate to form a partnership linked to an exit-strategy. For example, a small company that had 60 per cent of its turnover with just one account eventually agreed a four year exit-strategy, with a larger partner, during which the partner would invest in appropriate sales and marketing activity and also relocate the vendor - so its overheads were significantly reduced.
Are vendors in general more inclined to sell These days rather than stick it out?
No discernable difference, because entrepreneurs will always be entrepreneurs.
Is there any such thing as a straightforward sale?
It depends on your 'point of reference'. If you go into the deal expecting the sort of stress generated from an 'acrimonious divorce', then you'll be pleasantly surprised. Conversely, if you go into the deal thinking it's going to be a 'walk in the park', then clearly you're unprepared. The reality is this; a shareholders' business is likely to be the single biggest asset that they will ever own, so invariably there will be some pain during the disposal.
Are vendors more realistic on price these days?
Who's to say what a 'realistic' price is? It's a constant surprise how much companies 'are' worth and how much they're 'not' worth. Ultimately the market will decide what a company is worth.
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