Shaw & Co recently held a free webinar to provide the business community with expert analysis regarding all aspects of the sales process – from developing an exit strategy and the sales options, to valuation, finding a buyer and negotiating the deal.

Following is an overview of the discussion which featured Rob Starr, Head of M&A, Shaw & Co; James Strickland, a respected entrepreneur who has sold several businesses; Tim Roberts, director in the corporate finance team at law firm Burges Salmon LLP; and Rachael Verinder, Director, Verinder Powell Associates.

A video of the complete webinar is available here.

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Section 1: How to develop an exit strategy

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Rob Starr, Shaw & Co:

“One of the first considerations is: what is your magic number? What is the number that would make you feel secure? What is the number that would make you happy and allow you to do what you want to do?

“It’s important to understand where you're trying to get to. What sort of turnover do I need to achieve? What sort of profit do I need to get to? What operations do I need to put in place to support that? Do I need a bigger sales team? Do I need to improve the operational functions to make it more streamlined and more efficient?”

Tim Roberts, Burges Salmon LLP:

“The mantra from a legal perspective is to be prepared. Time spent upfront will definitely be rewarded with a smoother process later on and it can make a real difference to the ultimate sale price. It's also important to make sure your house is in order so you're as attractive as possible to buyers. Issues cropping up during the course of a transaction can have a real impact on the buyer’s relationship with the seller because it puts it all on edge. It can really affect the deal.”

Rachael Verinder, Verinder Powell Associates:

“One of the key questions that people usually ask when they are looking ahead at selling their business is whether they will qualify for the 10% capital gains tax rate on their sales proceeds. This is now known as ‘business asset disposal relief’ but used to be called ‘entrepreneurs’ relief’. Previously, it was a 12 month qualification period but is now 24, which is why we advise reviewing these things at least two years ahead of a sale if you can.”

James Strickland, entrepreneur:

“I think when you are an owner of a business and you're looking to what sort of exit strategy you might put in place, the earlier you can start that preparation, the better. For me, I think it's about 18 months out from the transaction to ensure that you're focused on the target. But more importantly, you need forward momentum on any contracts that you may or may not have in place. Ensuring that those contracts are in place and the longevity of those agreements is key.”

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Section 2: Sales options: Trade sales, MBOs and EOTs

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Rob Starr, Shaw & Co:

“The first option is a full exit via a trade sale. This could be a similar company coming in to buy you for strategic reasons, or it could be private equity. For the latter you will need a strong management team because they are effectively backing that management team.”

“Another option is a management buyout (MBO) which usually also involves private equity. Often MBOs provide a smaller price as you are not running a competitive trade sale. Then the last exit option is an enterprise ownership trust (EOT), where you transfer the control of your business to your employees in a trust format.”

James Strickland, entrepreneur:

“I think the key here is understanding the options – you need to get very comfortable with each of those and what it actually means in terms of the future. Clearly, if you go private equity or an MBO generally, then there will be more ongoing requirements to stay in the business than if you do a trade deal.”

Rachael Verinder, Verinder Powell Associates:

“On a trade sale, one of the important points to note is often, as part of a deal, you will have your cash proceeds, but you may also have deferred proceeds. So you might have for example, 60% paid on day one 20% paid on the first anniversary and then further 20% paid on the second anniversary. It is important to understand the timings of tax payments and your cash flow.”

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Section 3: Valuing a business and finding a buyer

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Rob Starr, Shaw & Co:

“Valuation is the million dollar question. You might have a great historical track record, but the buyer will be looking at your future revenue and growth. That is what they're interested in, and that is what they're paying for.”

Tim Roberts, Burges Salmon LLP:

“A competitive trade sale process can be really useful as it can secure you the best price, but it can also get you the best outcome in terms of the legals. What we'll often do is provide the bidders with drafts of the full sale documents and get them to mark them up as part of their offer. That way, they know they're up against others and will only raise the points that are really key to them.”

James Strickland, entrepreneur:

“It’s about getting real about the valuations of the business that you've got and the asset that you own. And obviously working with advisors is always very, very important so you can control the process.”

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Section 4: Negotiation and getting the deal done

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Rob Starr, Shaw & Co:

“A lot of the negotiation is done before you reach ‘heads of terms’, which is where you're providing one particular party with exclusivity. It’s also really important to understand where your buyers are coming from, how they valued the assets, and what conditions are attached.”

Rachael Verinder, Verinder Powell Associates:

“It's important to consider tax clauses in the process early, preferably before the heads of terms are even signed, in case HMRC ever request sight of all documents relating to the transaction.  Hopefully, you might be in a position whereby you're fortunate enough to have a number of offers on the table and It will then be helpful to understand your net of tax position early on in the process.”

Tim Roberts, Burges Salmon LLP:

“There's a real step change once exclusivity has been granted. It's easy to think that getting a set of heads of terms agreed is the hard bit and then it's all downhill from there, but actually that's the start of a really intensive process. All the workstreams at that point are suddenly ramping up to full speed. They're all running in parallel and it can be very pressured and stressful. That's where advisors are key.”

James Strickland, entrepreneur:

“I think this is this is when it all gets a bit hot and heated. You need to understand what you're up against or who you're up against. I actually made the decision during one process to switch legal firms to have somebody that could compete with the people that we were up against.”

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VIEW WEBINAR

To watch the complete webinar click the video below (viewing time 66 minutes).

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If you'd like to discuss how Shaw & Co can help you sell, buy or fund the growth of a business, please book a meeting here