Cambridge Caledonian

No exit or succession plan?

According to Imperial College London 95% of business owners have no exit or succession plan. Sounds a bit high to me, but I guess if the question was asked about written planning then it may well ring true.

We're interested to better understand how business owners in our region think about these issues - and so we're conducting a survey. It is difficult for even the most successful business owners to grapple with exit planning. The survey is to test the extent that directors and shareholders are ready to achieve the kind of exit that they'd chose, and at a time of their choosing - or if they will simply be forced to respond to events? Of course having a plan should allow them to maximise the value of their investment in the company, and exit in a manner of their choosing - whether this be a management buyout or a company sale.

As an economy we need successful entrepreneurs - and they need an orderly way to realise the wealth that lies tied up withing their businesses. If you'd like to do the survey click here - as an incentive there's a draw for a bottle of champagne or a free valuation report.

Pirates go swimming in Penzance?

I'm on stage in Pirates of Penzance this November (21 - 26th) at the Arts Theatre in Cambridge.   This years production is set at the famous Art Deco Penzance Lido - so you can tell there's also some time travelling involved, as it was not around when the original story was set.   The Pirates are a sort of Bullingdon club on tour, the daughters are land girls, and the major general is, frankly,bonkers.

Coincidentally I'm playing the same role as last time.     In 2004 I did this with a vaguely West Country accent, this year I have been asked to assume a Scottish accent - I hope I can pull this off successfully!

Production team includes Tommy Thomas once again as MD, and new to CaOS director Sinead O'Neill.     She has worked with Glyndebourne, and is a prime  mover in the new Cambridge City Opera, Cambridge’s first fully-professional opera company, of which
she is Founder and Artistic Director.

This years Pirates of Penzance  promises to be a lively and amusing take on the show.   For those of you who didn't appreciate last years modernised, humour "lite" Mikado this years Pirates should be a refreshing return to G&S presented as the musical/comedy it should be.

Graphic - Cash for M&A growth in company cash balances

Cash balances in larger corporates have built up steadily since the financial crisis are folk husband their resources carefully.  I've often commented on how such large accumulated cash balances in have become a driver for M&A "post" financial crisis.  

They say a picture is worth a thousand words - well I've found a chart that illustrates the cash balances growth very clearly.  

The graphic which is from Capital IQ via Deloitte shows cash balances fairly static up to the autumn of 2008 since when they've grown strongly.

How can I sell my business for maximum value?

For most busines owners once they've begun to think about exit strategy "how do I get the best price" is often top of the list of questions.   We're addressing that at a series of three seminars this autumn entitled Business Exit Strategies.    They're being held on 3rd, 10th, and 24th November in Hemel Hempstead,  Northampton and Brentwood.   These are half day free seminars designed to demystify the topic and to offer genuinely practical insight and ideas for business owners.  For full details and the ability to book easily and confidentially visit our website.

For those owners who want a decent price but also the ability to acheive a sale to their management team to reward the people,  and to secure continuity we have a special session in the seminar on this topic.  Its an area we specialise in and we'll be sharing some pracitcal advice and some real case studies.

What type of company will appeal to buyers during a recession?

They say the cream rises to the top. 

And especially in a recession buyers tend to look to quality.  Some questions to ask.

• Can the business be scaled beyond any real or perceived dependence on the owner?
• Does the business have its own proprietory products or services?
• Is there a strong management team which will stay on after a sale?
• Does the company have a defensible niche in the market?
• What about the customer base, how long have they been trading with the company - is there a good story on customer retention?
• Is the businses model underpinned by recurring revenue streams?
• Does the busines have growth opportunities?
• Are operating margins strong, and are they holding up?
• What risks does the businss face and are they manageable?
• Are the accounts in good shape, and does the businesas have good systems?

 

Preparing your company for sale in tough times

The M&A market is much better than it was.  Companies are selling.  But the recovery is fragile and its important to prepare well in order to maximise the value on sale of a company.

Three key things to do are put your house in order, accept "funny money"  and sell the growth plan.

Housekeeping

This is always important - but especially so now.   Get your accounts squeaky clean.  And your balance sheet in order - i.e. not stressed.     Think about the impact of any investments on the level or surplus cash on sale - will you get better value by deferring them or funding them differently.    Also have a good clean track record, and if there are any ups and downs have them cleanly recorded so the buyer can easily understand what's gone on.

Funny Money

By this I simply mean that to get the best price you may have to accept defered consideration, earn out deals, or paper.   There's less liquidity about, and buyers with cash tend to want to hang on to as much of it as possible.  Deals are often done with between 33% and 50% seller financing.     This is not neccesarily a bad thing.  It depends how its structured.  And don't assume that earn outs are a bad thing - not everyone makes money from them, but I have advised on a number of company sales where the team have made most if not all of their earnout.

Growth Plan

In an uncertain environment you need to make the case why your company will prosper and even grow once it has changed hands.  You don't have to have implemented your plans - but it would be good to illustrate that you have tangible plans to increase profits.  For example if you plan to enter a new market, it would be good to have taken the first steps - you don't need to have set the world alight - but a buyer will rate you higher is you have proven your new idea has potential.

 

Trends in buyouts v M&A

Buyouts are usually discussed as being distinct from M&A - more usually thought to be corporate merger and acquisitions - although of course they're just another flavour of acquisition transaction.     Barclays Private Equity and the Centre for Management Buyout Research have recently published their review of activity in Q1 of 2011.   Lots of stats but interestingly on the one had management buy-out volumes are at historic lows and at the same time MBOs rose to account for a greater proportion of M&A activity in a flat market. 

Within the MBO market the smaller deals - which they classify as below £10M have suffered the biggest downturn with just 269 deals at a value of £508M completed in 2010 compared to only 75 deal;s at a value of £137M in the first quarter of this year.  Not surprising given that the lack of bank liquidity for deals is most pronounced at that end of the market. 

Despite that the overall prognosis is marginally positive - some signs of recovery in volumes and just as importantly in the UK exit market.     Given the recent Eurozone problems, and that of the US economy I can imagine that the Q2 report when published will be even less bullish (if possible).

Seven Exit Planning mistakes to avoid

Here's 7  exit planning mistakes to avoid.

1. Don't be reactive

A great strategic buyer might just beat a path to your door.  But its unlikely.  Even less likely is the thought of two or more buyers chasing after at the same time.  

So be proactive - if you want to sell your company you can get real competition amongst buyers - but only if you have an auction process to drive them towards you in the first place.

2. Avoid loss of focus

Its very easy to become consumed with the sale process - and this is usually rapidly and significantly to the detriment of the business.   Hire some professionals to market your businses and to manage the sale process - leaving you to make the single largest contribution to the process that of continuing to trade profitably and develope the company.

3. Bad timing

Judging the best time to marketint the comapny in order to maximise the sale value is critical.  Think carefully about how the company is performing, and what's happening in the market place - for example is there consolidation currently happening in your sector?

4. Not having a realistic idea of what your business is worth

Do you have a good idea what its worth today?  You need to form realistic expectations before going into a sale process to ensure that the outcome will meet your needs in retirement, or as capital for your next project.

5. DIY

This is not a DIY project, to get the best outcome and to maximise the value from a sale of your business you need to work with an experienced team with the insight, resources and marketing skills to get your company in front of the right buyers, and to engineer real competition.

6. Leave time for the process

Selling a buiness is complex, and to get best price can take 3, 6, 9, or even 12 months.  Prepare early, get your house in order, and approach the sale in a controlled and planned fashion for best results.

7. Consider alternative strategies

Selling now to a trade buyer may not be the best answer.  Have you considered a management buyout as a means to acheiving succession?  This might allow you to sell in part and ease out gently whilst relesaing capitla tax effectively.     

Cameron Saxe-Coburg and Gotha blamed for M&A downturn

 It depends what source you go to for statistics, and there are plenty to chose from, but it does   
look as if the UK M&A market is slowly turning up.   Merger Market reported a 64% upturn in deal values to £23Bn comparing Q1 2010 with Q1 2011.    That said volumes were up a meagre 3% so the upturn in their figures was all about a few large deals.  

On a more positive note most businses sectors have seem some upturn.  There has also been lots of cross border technology sector activity - mostly focussed on smaller strateic deals.   The East Anglian picture is similar with big deals - such as CSR's acquisition of Zoran Corp for £420M skewing the figures.

The Merger Market stats were drawn up to 31 March.  However over at CorpFin which has some more recent figures  they were reporting a downturn in April - blaming David Cameron and the Royal Family formerly known as the house of Saxe-Coburg and Gotha.   Well what they actually said was that the unusual number of bank holidays slowed things up - the extra's holidays being down to DC granting an extra one for that wedding.   And it did feel like August come early.   It will be interesting to see if May shows a compensating uplift once figures are available. 

Nuclear flash over Grafham water after sailing one evening recently. Actually no just the camera on my phone failing to cope with the exposure.