Selling a business is something most owners have never done before, and 90% of businesses looking to sell fail to do so. Well prepared and professionalise business are the difference between 5-7x earnings. Above average returns depend upon latent growth potential. Sell at a time when there is latent growth and business is ready, e.g. google 50-100x earnings.
The start is usually triggered by an approach. What are the owner’s ambitions? Which are the Strategic partners to assemble? What is the preferred option, phased sale, JV, trade sale etc. Capture the heads of terms with the key players, and select advisors with those that need to know and be involved pre exclusivity.
In order to achieve the best return, you need systems to support the credibility of the numbers, and a few years history of running the business professionally. It’s important the process is managed efficiently and expediently to mitigate poor trading during the sale process, and chipping in value.
Create an opportunity map per buyer covering:
- Contracted work and customer concentration
- Strength of management team
- Sustainable margins, security of margins
- Sell synergies
- Fixed low cost base
- Diverse supply base
- Strong asset base
- Well run processes
- History of Attainment of sales forecasts
Key aspects to consider:
- Separate board packs vs. operations documents
- Tell people – but only those you have to
- Incentivise key players only with share options
- Sell using a specialist get less close, use a generalist, only use sell side if buyer too conflicted
- Maintain trading during the process; speed to complete the deal, split the board responsibility
- Business plan potential history successes of the past vs. future
- New products untried, write back profit invested
- Trade vs. private equity, know business can be slow, PE move quickly but can roll over up to 70%
- Shareholder conflict, key players agree strategy up front choose advisors
James Caan’s advice is to get expert advice early so that there can be a couple of years to prepare for a potential sale. BlueBox http://www.blueboxcfg.com/home was founded by James Caan and Paul Herman to address this specialist gap to support business owner’s maximise the sale value.