Thinking ahead to success: How to sell or merge your business

Looking to exit or expand your business in the future? If the answer’s yes, then read on. With more than 25 years’ experience of helping companies with their biggest business deals, Mark Standish, Haines Watts Head of Corporate Finance in Northampton answered our questions and offered some excellent advice on how to optimise your success.

When should business owners start thinking about a sale or merger?

Mark Standish Head of Corporate Finance in Northampton at Haines Watts
Mark Standish Head of Corporate Finance in Northampton at Haines Watts

‘Grooming’ a business takes time, so the earlier the better. The most successful sales and mergers are achieved in a planned and organised way, with one eye on the ultimate objective whenever you make key business decisions. Thinking ahead also prepares you for any unforeseen circumstances, such as personal financial difficulties, a family crisis or poor health, forcing you to sell earlier than expected.

What makes a business attractive to a sale or merger partner?

The heart of grooming a business is making decisions that enhance its appeal and value. Naturally, this means steering it into a good, local, national or international competitive position, with strong levels of contracted or recurring income. Well-positioned businesses with growing sales, profits and much sought after proprietary assets, such as Intellectual Property (IP), always attract a better price.

Too often, deals fall apart at the due diligence phase because something doesn’t bear up to scrutiny. Make sure you have excellent financial management and reporting procedures, adequate investment, and a best-practice approach to other aspects of your business such as employment and property. A strong secondary management tier’s also extremely attractive in a sale, as it means the purchaser doesn’t have to invest in new management and can greatly ease the transition period of your exit.

What are the best options for a sale or merger partner?

The best option’s often found within the business, whether talented employees or the next generation of your family. You’d be surprised how many owners overlook employees simply because they don’t perceive them to have the financial capability, but many financing options may be available. Private equity can be a solution for larger sums, while bank loans might be a better option for more modest requirements. Owners may even be able to finance the arrangement themselves in the case of simple succession arrangements.

Mergers will always be with a third party, as will sales for which an internal route isn’t viable. The third-party route tends to result in a better sale price, but can be riskier than a well-planned ‘home-grown’ solution.

How do you choose a suitable third party?

In many cases, direct competitors are the most logical option. They can benefit from increased market share or geographical reach, cost savings, cross-selling opportunities, and even simply having a key competitor removed from their market. However, take great care over who you choose to negotiate with, as exposing your inner workings to an unscrupulous competitor could result in significant damage to your business.

You also have the option of approaching a private equity purchaser. Larger businesses can consider direct investment by a private equity firm, while smaller businesses might be an attractive ‘bolt-on’ to something major that the firm already invests in. Private equity firms, however, rarely ‘overpay’ for a business, so you may not get the best price.

What are the alternatives to selling or merging?

Developing a strong secondary management tier gives you the option of a management buyout (MBO), and this offers many advantages. The team is likely to be familiar with any due diligence issues that might put a third party off. Negotiations will be friendlier, with less chance of the price falling during negotiations, and they tend to be more discreet.

There are many options that can make the sale more achievable. You might consider a vendor-assisted buyout for example, whereby you retain part ownership of the business during a pre-defined transition period. You can also defer part of the sale price such as instalment payments.

How do owners get the best out of their advisors?

Financial and legal advisors ensure a smoother transaction and increase the likelihood of success. Work closely with them and be open about all aspects of your business so they can be as prepared as possible for any eventuality. Don’t be afraid to ask questions, explore scenarios, or share visions about the future of your business. Your trusted advisors want to understand your highest expectations, your boundaries, and everything in between.

One final tip. Although sale and merger transactions have standard procedures, look for advisors with experience across a wide range of deals. Every situation is unique, and a breadth of expertise ensures they can respond quickly to developments and protect you from increased risk and the erosion of value.

Mark Standish has worked as a corporate finance advisor for the last fifteen years, following more than 20 years’ experience in corporate banking. He’s held senior positions with UK and European banks, accountancy firms and his own M&A boutique practice. He also acts as an investigator for the European Central Bank, and as an expert witness in banking litigation and holds directorships and board advisory roles with a number of private and public-sector organisations.

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