Disposal

Introduction

The sale of your business is a major event in your life so it must be planned for, carefully managed and effectively executed. We are experts in doing just that.

Objectives

The starting point, inevitably, is identifying your objectives; what do you intend to do post sale? If you are looking to retire from business life and your business is the largest asset on your personal balance sheet, it is critical that you crystallise enough money from the sale (net of fees and tax) to maintain the standard of living you require and to do all the things that you want to in retirement.

Planning

Moving on to the planning process itself, it is difficult to generalise about how an owner should go about preparing a business for sale but it is important to identify areas of your company where a buyer may perceive there to be risk and take what action you can to negate or minimise such risk. Resolving potential issues before the sale process begins can enhance the price achieved.

Timing is another key factor to consider. From an internal perspective, are there factors (whether financial, commercial or otherwise) which impact on when it would be most advantageous to take your business to market? Externally, we will help you identify, analyse and interpret the nature and extent of mergers and acquisitions occurring in your sector.

Reviewing the market takes us neatly onto potential acquirers. This is such an important part of the process and it is imperative that we undertake research of a sufficient breadth and depth to ensure that we identify all credible potential acquirers. We may well then prioritise those which we feel are more likely to buy than others (using evidence of previous acquisition activity), can deliver a premium price (where there is the greatest strategic fit) and, naturally, pass the affordability test.

Having identified how best to position your business for sale and having appraised the market place we should now reconsider your initial objectives. Does the work we have done and data we have collected lead us to believe that you will be able crystallise the amount you need from the process? The answer to this question is critical.

Before moving on with the disposal process, it is worthwhile briefly considering what steps you might take if the conclusion drawn from the planning process is that the company is not currently worth the amount that you need to deliver from the sale. How will you fund the organic growth required to increase the company’s earnings to deliver the incremental value you require? Might it be appropriate to consider making an acquisition?

Approaches

Returning to the sale process, having established who we are going to approach to buy your company, consideration then needs to be given as to how we will approach them as well as what information we will provide and when. There is no one size fits all answer to this, the approach we take needs to fit the specifics of the situation. However, it is often the case that we may choose to provide limited, high level information which is sufficient to whet the appetite of potential acquirers but does not immediately reveal your identity. This, as will not surprise you, is a difficult and delicate balance to strike.

Information Memorandum

Having drawn potential acquirers to the process, it would then be appropriate to satisfy confidentiality considerations as a precursor to providing interested parties with more detailed information, most likely in the form of an Information Memorandum. This document should provide a sufficient depth of information to enable us to narrow down the list of potential acquirers. It may be that the next step is to meet with the remaining participants to answer specific queries and ensure they are now in a position to make an offer for your company.

Offers

Conditionality becomes a key issue at the offer stage of the sale process. It is imperative that we negotiate to remove as much conditionality as possible from indicative offers. This reduces the risk of the deal becoming less attractive to you further along the process, possibly to such an extent that you may have chosen a different preferred bidder had you been aware of the impact at the time.

Selecting the preferred bidder is clearly a critical point in the process; we must ensure that all bidding parties have produced comparable bids. If this has not been done then, rather than make a quicker but potentially flawed decision, go back to those parties who have provided insufficient clarity on certain points. Only by making the bids directly comparable can we derive comfort that you have made the best decision you could.

Heads of terms

Selecting the preferred bidder and agreeing an acceptable price in the Heads of Terms is an excellent starting point but, remember, it is no more than that. We must continue to work hard throughout the process to maintain that price and see the deal through to a conclusion.

Due diligence

On we have reached this stage, we enter the due diligence phase of the process. It may sometimes be an understated part of the corporate finance adviser’s role but the job of project managing a process through due diligence is critical. This phase of the process, when the acquirer gets a far more detailed understanding of the mechanics of the business than it has to date, must be carefully and actively managed to ensure the agreed price is maintained through to completion.

The due diligence phase can of course be wide ranging although in most of the transactions of the size that we advise on it tends to be limited to financial, commercial and legal.

It is imperative that the financial performance of the business does not suffer during the sale process. As will not surprise you, any unexpected slippage will immediately register with potential acquirers and make it much more difficult to hold the offer price.

One of the interesting features of this stage of the disposal process is that it tends to begin to broaden the team of people involved – this helps share the burden, bring more specialist skills into play but also possibly impacts on our ability to control the process. Whereas early discussions through to Heads may have been restricted to principal and adviser, there is now the need for the wider advisory team to become heavily involved. It is therefore imperative that someone (your corporate finance adviser) is acting as a hub to ensure that everyone is working in concert, everyone knows what they need to do and timescales/deadlines are being closely monitored.

Whilst it may seem a little simplistic, there are some basic project management tools that can be used to bring a consistency and clarity to the process which may work strongly in our favour.

Legals

The due diligence and legal phases will inevitable overlap but, once the due diligence has been bottomed out, there will still be a significant amount of work to be done to get through legals to completion. This is a challenging part of the process where you will need to take the right advice from one of the many good corporate lawyers in the North East. We will continue to work closely with you during this phase of the process, staying by your side through to closing.

Commentary

If you are selling a business which you have owned for five, ten, 20 or even 30 years and this is the first sale process you have contemplated, it will be extremely difficult to avoid the pitfalls it has taken us many years of day in day out corporate finance experience to identify. So why not come and talk to us? We can help you walk the path we have taken ourselves as principals and many times as advisers.