Selling a Business – Some Considerations
By Ian Sempers, lee Baker & Gordon Dutch
People often ask all 3 of us about the process of selling, merging or floating a business and whether it was, “the right thing to do”.
Our answer is that the decision to sell, merge or float a business as an owner/founder is an extremely personal one and is completely unique to the individual’s circumstances. The results can be life-changing and provide financial security, but the process can be stressful and may often result in failure (a recent Harvard Business Review reported that between 70 and 90 per cent of M&As fail). Ian realised value for his AV distribution business back in late 2016 and so can provide an excellent perspective and advice to those who may be contemplating selling their business.
Here are some key points to consider:
‘Who do you want on your team?’ - Any business or organisation wishing to sell, will want to utilise the most capable firm to maximise the value of the company. However, the same level of consideration should also be applied when considering the Business Adviser and Legal partner you appoint to handle your sale.
‘Do the advisers you are considering have previous experience of M&A in your market sector?’ - and if so, were they able to realise significant value for the vendor?
‘Is there a strong personal relationship with the Advisers?’ – As often the process can take much longer than anticipated and there may well be a few bumps in the road along the way.
There are many Financial and Legal partner options out there and many ways of structuring a deal with them. Therefore, our advice would be always go with the advisers who offer the best value, can best protect your interests and with whom you work well with, rather than the cheapest option. It is also worth considering incentivising them to perform over and above the basic agreement and then both parties can benefit from an improved offer.
Fail to Prepare, Prepare to Fail
Any acquirer is going to want to take a decent look at what is underneath the bonnet, particularly if they are a FTSE listed company, (as was the position in Ian’s case). That is very much their prerogative, particularly if they have external shareholders. These companies need everyone to understand the rationale for the purchase and, of course, justify the money being spent and the value.
Therefore, it is critical prior to any formal engagement with the other side’s advisers, that you have all your ‘ducks in a row’. If you are going to sell, we would highly recommend planning well in advance where you can. Use a quality accountancy and audit firm. Explain your intentions to ensure that all of your records are up-to-date, presentable and can be easily uploaded into the data room.
You really need to engage with your Auditor, explain the situation and prepare them for some significant extra work, which may involve going back on previous financial years. Often you will need to justify decisions made in the past three to five years even if they appear less relevant at the time. It is almost impossible to under-estimate the volume and extent of enquiries into your business by an acquirer and so surround yourself with competent people, who can deal with the questions and help guide you throughout the process.
The other area to consider right at the start of the process is tax. The current HMRC tax rules (as at May 2021) and the level/allowance for ER (entrepreneurs relief), are massively different from the ones in place when Ian sold back in 2016. Therefore planning years ahead could well make a huge difference to the amount of tax you pay upon any sale.
What does the post-Acquisition Landscape look like?
Of course, this varies massively on the individuals and what they are looking to get out of the sale. During the sales process one can become fixed on the ‘prize’ at the end of the negotiations. After all, it is flattering that someone values your business to the extent that they make you a decent offer. Once the deal completes, there may will be some uncertainty, particularly amongst your employees and so it is important that you have a clear understanding of how the business will operate post-acquisition and look after your team as best you can. After all many businesses, including our own, were created not just by the founders, but by our excellent teams, and so try to make sure that the people who helped you build the business are also well catered for within the new structure.
After all, it was the team that helped you get to where you are. So if you want to know more about selling a business, just reach out to us email@example.com
Here’s what our Industry Colleagues say about us...
Peerless-AV would like to pay tribute to the incredible work Gordon and his team have done since 2009. It’s sales and brand awareness since we launched Peerless-AV EMEA in 2009 has been massive. Gordon’s strategic leadership and incredible work ethic, along with the dynamic leadership of a best-in-class team, which he assembled, has led Peerless-AV to the forefront of the AV businesses.
Global President & CEO of Peerless-AV