Steve Cordiner looks into the best ways to go about selling the company that you have put your heart and soul into building.

Steve Cordiner
Steve Cordiner

While selling a business can be stressful, good advance planning and the right team can help reduce the uncertainties.

 

Many entrepreneurs will eventually want to sell the businesses they have built; they may want to move on to a new business challenge, realise some of the value they have worked for, or take a step back.

However, managing the sale of a business can be stressful, particularly when the broader market environment is uncertain. And amid the COVID-19 pandemic and the broader economic fall-out, the sale process will potentially be even more fraught.

There are ways to ensure that a sale runs as smoothly as possible. By planning ahead, preparing in advance and knowing what you want, you should be able to keep your stress levels down.

 

Start by thinking about likely buyers.

There are different ways to sell any business, with advantages and disadvantages in each case.

Think carefully about the best exit route for your company so that you can plan the process accordingly.

One option is to sell to a private equity investor, either for the first time or to a secondary investor.

This can be a more predictable process that is easier to control. You’ll decide when to put the business up for sale, you can ask as many private equity firms as you wish to bid, and you can choose how much of the business you might want to sell.

Private equity investors are seasoned buyers that will understand the process well, be ready to work with your documentation and data, and have specialists dedicated to executing transactions.

 

By contrast, a trade sale can be harder to manage, with a smaller universe of able and willing buyers.

They may be less experienced acquirers of other businesses and lack expertise of working through the process. On the other hand, a trade buyer may be able to pay more than a private equity buyer, on the grounds that they envisage enjoying synergies and growth opportunities not available to an investor.

The third option is an initial public offering (IPO), but this is closer to a private equity deal than a trade sale.

An IPO can be well suited to businesses who expect to have an ongoing need for capital or where the ultimate growth plan is less certain, but the IPO process is usually more onerous than a private equity solution due to the process that goes with listing.

You’ll need to meet the requirements of the stock exchange on which you list and comply with additional regulations, as well as dealing with buyers.

 

In practice, it’s not always certain which route you’ll choose until the moment of reckoning – and a trade buyer may materialise unexpectedly.

But if your business is ready to sell to a private equity investor, you’ll have done much of the work necessary for a trade buyer that is prepared to pay more.

Comprehensive advance planning will hugely increase your chances of enjoying a smooth exit process. While you won’t be able to anticipate every eventuality, you should aim, well ahead of starting the sale process, to know exactly what you want to achieve and how you will seek to achieve it.

You should also have identified any potential nasty surprises.

In practice, this means appointing advisers well in advance. Give your advisers the opportunity to get to know your business in detail, which will probably take at least 12 months. They’ll help you to prepare most of the sales materials you’ll need in advance.

 

Develop a detailed business plan.

Assemble the presentations you’ll make to buyers, set up “data rooms” with all the key information buyers will want on your business, consider tools such as virtual due diligence facilities and source any work required from third parties such as auditors.

Advisers will also have a good feel for corporate finance activity in your sector and may be able to introduce you informally to potential buyers at an early stage on a get-to-know-you basis.

Your advisers can keep you posted on transactions in the sector, which will often have a clear read-across to the challenges and opportunities that your business will face.

Once you do begin to press ahead, bear in mind that the sales process may take many months; it’s crucial that you don’t allow your business to suffer as a result. If you’re so distracted that your ability to do the day job is impaired, the damage to the business may be long lasting.

 

Potential buyers will be watching your business’s performance on an ongoing basis very closely.

If results start to fall away, particularly in relation to the plans you’ve presented, you may undermine their confidence in the business. That may impact the sale price, or even jeopardise the transaction.

To minimise the risk of distraction, aim to conduct the sales process at the best possible time – outside of peak trading periods, for example, and when key figures in the business will be available.

Many businesses favour pre-Easter, pre-summer or pre-Christmas. Make sure you have sufficient management capacity in place.

 

Do you have the strength in depth required to run the business well while your Chief Executive and Chief Financial Officer are likely to be focusing much of their time on the transaction? If not, it’s important to remedy this problem ahead of time.