Selling up - without selling yourself short

Selling up - without selling yourself short

Most business owners will sell their company at some stage – but how should you best go about this and, in a climate where unsolicited offers to buy businesses are on the rise, how should you cope with an unexpected approach? Paul Johnson, corporate partner in the Manchester office of UK Top 100 law firm Ward Hadaway, takes a look.

Unless you want to reject all approaches out of hand, a sensible first step would be to conduct some due diligence on the potential acquirer – have they bought businesses before? Do they look like they can afford to buy your company? What kind of reputation do they have in the marketplace?

Acquisition approaches often come from people and organisations you may already have a relationship with, such as a customer, supplier or competitor. If this is the case, be careful how you handle their enquiry and what you tell them about your company especially in the initial stages as this could just be a fishing trip to find out more about your business.

If you decide you want to move the process forward, talking to your professional advisers is a must. Ensure they are experienced in selling companies - not all accountants and lawyers are. They will give you advice on the approach, help to manage the process and give you the benefit of their experience in evaluating any offer.

Some basics:

  • Do put in place a confidentiality agreement;
  • Don’t disclose very confidential information
  • too early;
  • Don’t let the buyer talk to your employees and customers, at least until a deal has been agreed and documentation well advanced;
  • Do focus on the business;
  • Do talk to your advisers before agreeing a deal
  •  Although many businesses are sold after an unsolicited offer it is often not the best way of achieving the best deal - would you just sell your house to someone who knocked on your door?

I’ve set out below some rules for those looking to plan a sale:

  • Plan early;
  • Think about what would encourage you to buy the business;
  • Do some due diligence on your business - is it fit for purpose? Will it stand up to the due diligence process?
  • Take tax advice to get yourself in the best tax position;
  • Look at ways to improve the key drivers to value, often a combination of profit net of tax, interest and depreciation and the level of cash/indebtedness;
  • Keep control of any process.

You should engage with your professional advisers early on so they can help you identify potential buyers, such as private equity houses and your own management team as well as trade buyers. A shortlist should be drawn up and a plan on how to communicate with potential buyers agreed. Using your advisers in the early stages can enable progress to be made without your identity being disclosed.

Then things often begin to develop their own momentum but remember ‘keep control’, not just because you want to but because it can and often does add real value to the deal.

Key areas to help get and keep the best deal:

  • Be clear at the outset as to terms that are important to you and get the buyer to set out their approval to such terms before you agree to a deal;
  • Keep competitive tension between potential buyers for as long as possible;
  • Reduce the time between agreeing to deal with one buyer and completion.

There are other matters that are important over and above the headline price: does the buyer want you to stay on? Is some of the price dependent on future results? What’s your potential exposure if something goes wrong?

Following the ‘rules’ and keeping in mind the ‘key areas’ should enable the best offer to be negotiated and reduce the risks of this being chipped away.

The likelihood of nasty shocks should be reduced if proper planning has been undertaken and the process has been designed to maximise value.

Last stages of a sale require patience – there can be many final hours of a deal. Bear in mind that everyone will be doing their best to get things completed as soon as they can and sometimes patience is the best way of achieving that.

For more information on the issues raised by this article, please contact Paul Johnson at paul.johnson@wardhadaway.com or on 0161 837 3903.