How to Successfully Complete a Business Sale for More Money
Sometimes getting an offer is the easiest part of the journey. If you aren’t prepared for the next steps in a business sale there is a high chance it will still fail to complete. With one client this resulted in the ultimate rollercoaster exit journey that includes a failure, reset and finally success.
Where Did We Start From?
The client have a great business providing engineering services in a niche area of the communications industry. Already they tick a lot of boxes. They are profitable. The business serves a defined market that was actively growing. There are long-term blue-chip customers. They have a management team in place. The owners can step out and have already started to extract themselves from the day-to-day management. So far so good. Then they go to market to sell without any additional preparation for the sale process.
The Big Challenge: Successfully Complete a Business Sale for More Money
On the outside this business looks like an ideal ready boxed acquisition for someone in this industry sector. When they initially go to market, they get a lot of interest. They quickly have several bids to buy for a wide range of prices. The bid range comes with different terms and conditions – from £6m with 100% cash on day one to £21m with a lot of deferred payments and long earn out.
Dazzled by the high bid, regardless of the terms, the sellers go forward with this buyer into a period of exclusivity for the due diligence process. They have done no preparation and the broker has built all their financial forecasts for them. This starts to cause problems straight away because the in-house finance team do not know what is happening and aren’t consulted on the financial projections. When due diligence starts the first thing that is reviewed is the projections that are included in the information memorandum. They don’t match the submissions to the data room*.
As soon as more questions are asked and the answers don’t match the information memorandum, the buyer sees more and more risk. It appears that the business has been run as a lifestyle business which gives the buyer cause for concern about how the business operates without the sellers.
There are too many red flags for the buyer. Eventually the sale process breaks down and the buyer withdraws from the process. It is back to the drawing board. At this point I am invited in to help before they go back to the market.
Important failure points here:
- Lack of understanding of the journey and what is going to happen during the sale process.
- No preparation of non-financial issues within the business.
- Inadequate financial reporting and no robustness in the analysis of financial report that is presented to potentials buyers.
- No team engagement in the process.
*Note: A data room is where the information shared with a buyer is held and it forms an important part of the sale documentation.
The Big Solution: Completing the Sale
A key factor in the failure of the business sale process is lack of preparation so immediately work gets started on due diligence preparations, including revised financial forecasts and collating all the legal paperwork. Reviewing contracts and leases meant the business gets some loose ends tidied up. The owners recognise the need to widen the circle of people that need to be involved, especially their senior management team.
Bringing in the Team
The head of the finance team and the senior management team are bought into the inner circle to enable them to support the next round of due diligence. This makes everything easier for the preparation. It also means lower risks associated with retention of the team once the founders are out of the business.
Getting the Right Deal
As well as looking at the business, the founders also address what they want from the business sale and how the sale serves their needs – something they haven’t thought too deeply about in the past. Even at this late stage it was time they get personal tax advice, address shareholder issues and update all their personal documents (will’s, power of attorney, shareholder agreements etc). This makes the final negotiation of details in the terms of the sale handled smoothly rather than getting stuck in disagreements between themselves over the fine details.
Communication
It does involve a lot of communication that has previously been lacking in the business – the business owners have always been very secretive about the business, especially the numbers. It takes a while to persuade them that their team need commercial visibility to enable them to do their jobs. They are not comfortable with the exposure but do recognise that it makes a significant difference during the process.
With new up to date information, better financial forecasts and pre-due diligence review the business relaunches it’s go-to-market strategy version 2.0 and finds multiple interested parties. This time there is a lot more notice of taken of the terms as well as the headline purchase price, including the cultural fit of the buyer.
The Results: Completing the Business Sale for Better Terms
The business sale goes through without too much drama (there’s always drama in the due diligence process!). There is no reduction of price or significant change of terms. The biggest results:
- Full retention of the entire team within the business
- The price and terms they signed in the heads of terms are delivered
- The buyer have a smooth post-acquisition transition and the business operated seamlessly
Want to get these results for yourself?
Is your business saleable and exit ready for you to leave it (no matter when it happens)? Click to to get Christine’s free Exit Ready Checklist the expert in making sure your business is saleable for more money and on better terms. Christine helps you get out of the day-to-day, guides you through the handover of controls and gets you and your businesses exit ready so you can enjoy a happier, richer future. She saves you THOUSANDS so you can increase the value of your businesses by MILLIONS.