Our informative seminars and networking events are always held in inspiring locations and the Rosewood Hotel in London’s High Holborn, the venue for our September event Maximising Value For Your Business Sale, was no exception.
This flamboyant Edwardian building, once the headquarters of Pearl Assurance Company, was a fitting venue to host our technology entrepreneurs.
We were fortunate to have an impressive list of guest speakers, who each presented some compelling insight on how to maximise value in a business sale. Industry veterans Anne Chitan, partner at CMS Legal Services, Neil Parker, Director at NatWest Markets and Ian Fishwick, Chairman of AdEPT, gave diners much food for thought. Our guests, all TMT business owners, were provided with advice, recommendations and anecdotal evidence that catalysed a lively discussion.
Our Evolution Capital M&A experts were also on hand to suggest a viable route through a successful business sale.
Read on for our top tips:
Plan a process that works
We hold some strong opinions on this subject but essentially the course of managing a sale should be like any other business process. The fundamental stages of the process should include:
- Developing a simple shareholder vision with a valuation that meets objectives
- Deciding where the value should lie and making the necessary adjustments to enable it e.g. improving the quality of earnings, freeing up cash flow or increasing recurring revenues
- Identifying any obstacles to the sale such as tax or legal issues
Focus on preparation
Once the process has been planned and finessed it is time to commence the preparation, which can be defined simply as the development of the proposition. The proposition should be presented in a way that reflects market knowledge and opportunity and should be constructed specifically with the type of buyer in mind (e.g. an MSP, a security organisation or a systems integrator). Sellers should be completely engaged in each stage of the preparation and fully cognisant of what is needed to successfully pass each milestone including due diligence and completion.
Nigel Cook, Evolution Capital’s Managing Director, explains: “To successfully sell their company, owners need to understand that the first and last stages of the transaction are, perhaps, the most important. Many advisors will get you to focus on their ability to engage with a huge group of cross industry buyers. In reality there are only ever half a dozen buyers that can meet your price and expectations so it is vital that you have the right process and can defend your position during every stage of the sale.”
Evolution Capital tends to start the preparation process off with a complete strategic review, looking at each function and operation of the business and recommending where changes are necessary. If issues do arise they can be sorted out well in advance of any buyer engagement. Once all the recommendations have been implemented successfully an IM (Information Memorandum) can be created and the business is ready to be presented to prospective buyers.
Manage the transaction carefully
The business adviser/deal maker should ideally come up with some qualified buyers. When one is found and heads of terms are agreed, the complex part of the transaction process begins and needs careful and attentive management. Lawyers and accountants will invariably be required to do some heavy lifting during this stage. It is in this critical period that the sale price is vulnerable to being eroded, but good preparation can avoid this eventuality. At this point, sellers need to be on the top of their game and should appreciate that all the gains from good marketing and hard negotiation can be lost through bad transaction management.
Anne Chitan, of CMS Legal Services, says: “Sellers should embrace the disposal process and be fully engaged throughout. Whilst acts of god are unavoidable, poor management of the process is not. During the due diligence exercise, it is essential that every piece of critical information can be found and presented in the correct light. Where necessary, contingency plans need to be considered in anticipation of any query which the buyer may have.”
Keep the momentum going
During the due diligence process, the business will come under acute scrutiny from the potential buyer and it will be essential to keep hitting targets and meeting forecasts. After all, if you fail to deliver the all-important results, it will do little for the credibility of you or your team in the eyes of the buyer.
Sellers need to keep the momentum up through the due diligence process to ensure a timely completion, responding to each and every request with urgency. An unresolved issue can turn into a deal-killer if left unattended and it should be remembered that buyers are on a timescale too.
Appoint the right advisers
Our speakers unanimously agreed that the appointment of seasoned, professional and expert advisers was an essential part of a successful transaction. TMT business owners have an overabundance of generalists at their disposal, who are unable to offer the requisite advice and guidance and should be viewed as a false economy.
The sale of a business is a multi-faceted, multi-skilled endeavour that needs professional advisers to provide the requisite input at the right time. Considerable time and effort should be expended in getting the right ones in place and there is no substitute for experienced practitioners.
Ian Fishwick, Chairman of AdEPT Plc, says: “Serial buyers receive, on average, one Information Memorandum per week. Unless your information is easy to understand and stands out, it could get ignored. The products and services on your website tell me what you want to be, but your management accounts tell me the reality.”
He continues: “I need to see revenues, and more importantly, margins, by product line. Where does this company make its money? How much is recurring, subscription-type revenue and how much is selling one-off hardware or software? AdEPT has bought 27 companies to date, but I have never bought any that did not use a professional adviser.”
In conclusion, there are events that sellers cannot control. For example, the effect of external phenomena, like Brexit, is something that is beyond the influence of most of us. Alternatively, preparation and process are manageable and something that can position the business to ensure early momentum and beyond. Ultimately it is all about identifying each part of the disposal process before planning, presenting and managing it to a successful conclusion.
As ever, if you would like help in selling your business, please do get in touch with our experienced M&A team