Maximising The Value Of Your Business In An M&A Sale Process

Selling your business will most likely be one of the most important events in your life. You may have invested the best years of your life into setting it up and growing it, often at great financial and personal cost. As an entrepreneur, you never truly switch off and stop thinking about your business. It is your baby, so to speak. For many entrepreneurs, selling their business will feel like watching one of their children move out of the family home for the first time. This creates a mixture of highly charged emotions right in the middle of what is an extremely demanding and complicated process. As a sale process gathers momentum, the pressure on you intensifies as more and more demands are made on your time by your advisers such as bankers, accountants, solicitors and wealth managers. This can make it difficult to think straight in order to maximise the value of your business, and creates the risk that you take some bad decisions under moments of intense stress and high emotion as the process unfolds. Diligent advance planning and early discussions with your loved ones, advisers and colleagues can take a lot of stress and uncertainty out of the equation. This allows you to focus on securing the best deal possible in a sale process with a clear mind.

Selling a business is not like selling your house. A business is a dynamic living asset made up of customers, management, staff, technology, intellectual property and good will. The fortunes of the business invariably ebb and flow over its life - valuing a business, therefore, is far from an exact science. Preparation is key, as is the use of skilled, experienced professionals in areas such as corporate finance, recruitment/executive search, management consulting and wealth management. Invest the right amount of time and money into your M&A sale process, and it will pay for itself many times over.

Map out your strategy and future plans with a good management consultant

A coherent and well thought out strategy and future plan is fundamental to becoming valuable. This work is not easy and getting some outside input can be useful in developing the right strategy and plan. It is well worth employing an external firm of professional consultants to help you with this process.The clarity that comes from such an exercise can be very powerful. Strategic acquirers and professional business buyers are delighted when a target M&A candidate on their desk has a clear vision, strategy and professionally developed plan. When all is said and done, an acquirer is simply buying the future: when preparing your business for sale, make sure you understand yours.

Know your numbers backwards, and invest in a good CFO

A strong CFO is critical, and is an essential investment – make sure you hire one, they will pay for themselves ten times over in the long term. It is a fundamental requirement to know and understand your numbers: past, current and future. Have a well thought out forecast for at least the next 12 months and ideally 3 years. Management accounts should be completed monthly and wherever possible should be accurate and produced in a timely manner. These should include adjustments for pre-payments and accruals – the profit for the period under review should reflect what has actually happened. The balance sheet should balance properly and be updated monthly. Do you have a simple finance snapshot available to you by the 15th of the month outlining your previous month’s performance with key insights? Go through all of your cost items in the P&L to see where you can eliminate waste and trim your costs so that your EBITDA numbers are as positive as they can possibly be for your M&A process – do not get distracted by top line revenue figures and forget to take care of your profit margins.

Separate personal assets from the business, and plan your personal financial affairs

An M&A transaction will lead to a significant wealth creation event for the vendors, all of which should be carefully planned with the help of experts. Speak to a reputable wealth management specialist, such as European Wealth in London, well in advance of your M&A process to have a confidential discussion about your affairs so that you can take professional advice in this area. Financial planning is hugely important - with recent changes in the tax regime it has become even more so. Quite simply it is the critical starting point of any meaningful wealth management strategy. Take care to separate personal assets from the business where possible to avoid confusing the buyer. Even if non-business assets are not in a separate legal entity, at least split them out for the purposes of presenting your management accounts. Clear, accurate and concise financial data gives buyers additional confidence.

Engage independent, expert corporate finance advisors for support in preparing your business for sale

Complement your deep understanding of the business with independent, objective experts skilled in valuation, negotiation and M&A deals. When preparing your business for sale, you want to have the time to focus on running the business as professionally as possible. A good corporate finance advisor such as Hampton Court Capital can help you secure the best possible deal and manage the buyer discussions for you. Check out the track record of advisors and make sure they understand you, your business and the market, and that there is a strong cultural fit. Work with a firm that knows your sector well and has existing contacts in the potential buyer universe.

Invest in your leadership team and “the next layer down” of management

Having a management team in place can be a great way of providing comfort to an acquirer that the business is not a one-man show. Introducing clear expectations and good accountability within the leadership team is essential to operating sustainably. Having a carefully selected and balanced team with the requisite skills adds significant value to an enterprise. Nurturing and building a leadership team that can run the business without you is an important part of the journey to preparing your business for sale or exit. Recruiters and executive search specialists such as Harrington Starr are ideally placed to assist you with building out your team and hiring staff.

Analyse and mitigate your risks, such as cyber security threats and revenue concentration

You want to present your business as a stable enterprise to potential acquirers. Being on top of potential issues and having plans to mitigate risks such as the risk of cyber attacks, high levels of revenue concentration, litigation, loss of a key member of staff and so on is essential to secure a premium valuation. Fair and reasonable buyers will not expect a completely trouble free business but they will expect management to be fully on top of their game and to have assessed the most important risks, and where necessary have them reflected in the numbers by way of provisions and have a sensible and cogent plan for each matter going forward. Formalise agreements with staff, suppliers and customers, and where possible make sure that agreements are current and valid. Being on top of your agreements and grasping their importance to the business in an M&A sale is good “housekeeping” and it is well worth sorting matters like this out up front at the start of your M&A process.

Be proactive whilst remaining discreet about the M&A process

Most businesses won’t be so fortunate as to get a knock on the door, but even if you do, you want to know that you’re getting the best deal. The only way to be certain of this is to proactively explore your options in the marketplace. This needs to be done intelligently and discreetly. Conducting an exploratory exercise while maintaining anonymity puts owners in the powerful position of having real and current intelligence from the market which then allows them to objectively assess the appetite of current acquirers for a business such as theirs. This is essentially creating your own market. The exercise will also alert an owner to the likely real-world valuation which can inform future strategy. You are not for sale; you are simply exploring your options. At Hampton Court Capital we believe strongly in protecting your identity and maintaining anonymity while seeking acquirers to avoid destabilising and thus potentially devaluing your business. Work on a need-to-know basis.

Invest in a robust corporate governance structure – spend time on succession planning and build up an experienced board of non-executive directors

Your business is more valuable to an acquirer if it is already running successfully and profitably without heavy involvement from you. At Hampton Court Capital, we advise all of our clients to set up a formal board structure prior to an M&A deal if they do not already have one in place. The largest, most successful global technology/media/telecoms companies such as Apple and Google have board meetings every month. Do you? We have found over many deals that creating a board and adding at least one non-executive director who does not work day to day in the business can be a very cost effective way of adding significant management firepower and raising the profile of your business to the wider community through speaking engagements, interviews and attending trade fairs and conferences. Additionally, the independence can add a degree of objectivity not always possible within the management team itself. Operating a board is a statement of intent and signals strategic and professional commitment. The board provides vision, leadership, accountability and governance to achieve the objectives of the business. It can also help to facilitate an owner stepping back from daily management to fully or partially exit the business without selling. Have you looked at succession more generally? What happens if you can’t sell the business or maybe not as quickly as you had hoped, or for the price you had wanted? What’s your plan B?

Finally, is your corporate structure efficient and will it optimise your position in the event of a significant liquidity event like a sale?

Article Written By: Paul Gosling, Debt Advisor at Frost Group

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