Cambridge Caledonian

Selling your business v managing succession

This is a choice that business owners face.  Do you plan to sell your business when the time is right?  Or do you plan for some kind of succession?   Of course the two needn't be mutually exclusive - a succession buyout or VIMBO can be partial with the owner retaining a meaningful stake.  And this can then be followed by a trade sale for example.   

We have done a number of management buyouts of this pattern where the plan is to groom the management team who are to achieve the succession over a period, and then the entrepreneur can exit fully at a later date.    

 This allows the rest of the team to become stakeholders, and the business often benefits.   Work life balance issues for the original owner can be addressed as it might yield the opportunity to go part time.   Each deal is different as no two companies, and especially no two directors have the same objectives.

To address these questions, and the thorny questions of when IS the time right to sell given the current difficult climate we are running an updated version of our Business Exit Strategies Seminars.    They will also cover grooming the business to build value or protect value in recession.

Even if a transaction in the short term is neither practical nor desirable, it is more than ever time to make plans for an eventual exit - or cash realisation.

The events are practially focused with interactive sessions and aimed squarely at business owners. 

They run in April in Ipswich and Cambridge, and again in Norwich and Peterborough in June.      Have a look at the events page on our website for full details of these and other events that we are running.

Sticking to our last........

We got a mention in Accountancy Age in an article about how smaller firms are faring in recession.    They spoke to firms in Cambridge, London, and Sussex - good to see London based journalists traveling far and wide for news!

They interviewed PEM managing partner Paul Chapman,  who was quoted as saying the corporate finance practice was deployed in marketing and research.   That's true - we are.   But its a quote in isolation from a longer interview.  To read it you'd think that was all we were up to which is certainly not the case.

Things are certainly slower than last year, but we have some interesting assignments at the moment. Despite the economy it is still the right time for some businesses to buy, sell, or make plans and so M&A activity doesn't dry up.   Retirement for example can't always be delayed for example and this can lead to management buyout opportunities, or to trade sales.   Also for some businesses it is the right time in their business cycle due to what's happening in their market,  or their technology road map may dictate it,  or simply because they've been approached by a strategic buyer.    Of course acquirers are seeking value at the moment.

So we're not diverting the team to do insolvency work, as are so many of our competitors.  And the research and marketing is aimed at supporting our current work load, and wining more.    The nature of the work is changing, we are seeing clients bidding for businesses in insolvency, and some succession deals are being done with an increased proportion of vendor debt as bank funding is just not available at the levels we saw before.

Brand Identity and Website

We’ve been up and running for a few years and have done quite a few deals.  So we felt it was time we had a decent website to showcase our activities.   At the same time we have worked with leading local design house Mobas to establish a distinct new brand identity for PEMCF to sit alongside that of the “mothership” Peters Elworthy & Moore.

 

Underpinning the new branding is professional market research done with our clients and local intermediaries in the corporate finance community such as bankers and lawyers.     Happily they said lots of good things about us – and this is reflected in the branding which includes real quotes from satisfied clients.      

 

The new strap line “Understanding what’s best for your business” also reflects client feedback – in short we listen, and it is very important to us to understand our clients’ personal goals, and to thoroughly understand their businesses.  This way we can personally deliver real insight, and get result for our clients.

 

Have a look at the new site on www.pemcf.com and let me know what you think.

Software Vendor Speak

I've always enjoyed the "venture speak" humourous glossaries of what VCs really mean when they talk.  We are currently working on a sale mandate for a technology company, and while doing some research recently for a sale madate I came across somthing similar for software vendors which made me smile.

24/7/365 Customer Support
Any customer can call and talk to the support company's automated telephone system at any hour of any day.

AJAX Powered User Interface
Looks pretty, crashes often.

Highest Growth Company For ...
We just received a check from a venture capitalist and have finally moved out of Mom's basement to a real office.

Open Source
Your mission critical CRM application will be supported and extended by several high school students in undisclosed countries.

Security Compliant
If we can't access your data, we don't believe anybody else can either.

SOA
Sometimes Overextended Application

Software To Be Released Next Quarter
The calendar quarter has been specified; the year has not.

Web 2.0 Company
We're bringing back the ideas and business models from the dot com era.

Business Exit Strategies Seminars

Despite all the gloom in the media about the credit crunch and the banking crisis we continue to meet people who are looking to do deals.  Of course there is more caution, and funding will undoubtedly be harder but there will be opportunities. 

Distressed corporates may seek to sell non core activities to raise cash - we are working an acquisition already where this has been the trigger.   I'd expect there to be management buyout opportunities too.  Anyone out there working for a business with an Icelandic parent company? 

Even if you're not planning a transaction in the short term, such pressures mean that is all the more important to plan now for an eventual exit - or cash realisation.  

To this end we are running a series events on the topic “Business Exit Strategies”.  They are practically focused with interactive sessions and aimed squarely at business owners. 

We hope that attendees will come away with a realistic view of what needs to be done to evolve and implement a strategy for growth, exit, or succession.   The events run in November in Brentwood, St Albans and Milton Keynes.   For further details visit www.pemcf.com

Investment advice

If you had purchased £1,000 of Northern Rock shares one year ago it would now be worth £4.95.

If you had purchased £1,000 of HBOS shares earlier this week your £1,000 would have been worth £16.50

If you had invested £1, 000 in XL Leisure it would now be worth less than £5

But if you had bought £1000 worth of Stella Artois one year ago, drank it all, then took the empty cans to an aluminium re-cycling plant, you would get £214. So based on the above statistics the best current investment advice is to drink heavily and re-cycle.

Doing deals in the crunch - or not

I don't usually go in for economic predictions.

Last week I submitted an article for a business magazine on doing deals (mergers and acquisitions, management buyouts etc) during the cruch.    Writing it early last week I tried to be reasonably upbeat - some deals will still be done, although being honest at the bigger end, or the more marginal end raising finance has become more difficult.   Since then the financial system has melted a little more.  

So when the magazine gets mailed out at the end of October will things have got better, will I look balanced and wise, or if it is this bad or worse will I look rather over-optimistic?    Who knows?  Watch this space.

Times are hard.................

............if the British Venture Capital Association ('BVCA')  has had to start charging £150 for access to its list of members. 

This had been available free, in a useful on-line search-able format which helped advisers such as us to target appropriate private equity or venture capital funders for propositions.    Most corporate finance advisers will cough up.   Yet the BVCA targets this information at entrepreneurs - that's the tab in its website navigation that leads to the information.    How many entrepreneurs, or management buyout team members will want to shell out as private individuals?   I shouldn't think they will and so instead they will go to folk they know, or have already heard of.    Less obvious venture capital firms will just not get the enquiry.   

Perhaps I am missing the point but it does seem odd for a trade association (with some recent bad press on private equity to overcome and more than £1M of cash in the bank per its last accounts) to expect its members customers; the entrepreneurs to pay to find them. 

I can't think of another trade association that protects its members from potential customers in this way.    Curiously unhelpful.

Cambridge Enterprise Conference

I attended the 9th Cambridge Enterprise Conference yesterday, which we were sponsoring.    Lots of interesting content with, I thought, a rather more practical slant than in some previous years.    Some nuggets that I thought worth noting were:-

1. Eddie Andersen of Pentech Ventures spoke about bootstrapping.   Having bootstrapped your start up company, you should continue to behave that way even after venture capital  funding.
2. Once again I was impressed by how good speakers can hold the attention of the hall with few or no slides - a lesson for all the powerpoint junkies out there.   Special mention then to Martin Brennan who told the fascinating story of the JB7with no slides,  and Peter Finnie of Gill Jennings & Every who had only three slides to explain the value of Intellectual Property as a strategic asset. 
3. Rebecca Harding proclaimed herself to be an optimistic economist.   Some cheer to be taken - amid the wreckage of banks collapsing all around us - from the Global Entrepreneurship Monitor showing the uk level of entrepreneurship holding steady, in contrast to most other developed countries.
4. Simon Galbraith of Redgate Software spoke on the contribution to success made by corporate culture.   While stressing the need to find "round pegs for round holes" he warned that the search for "fit" as part of the recruitment process was a call to prejudice - good point.     He reckons that people want great colleagues, the opportunity to do the work of their lives, a sense of belonging, wonderful management, and to be fairly paid.

So farewell then Financial Assistance..............

We completed a management buyout last week, and as part of it we had to work through - with the lawyers - an arcane process called a Financial Assistance whitewash.    Company lawhas prohibited companies from giving assistance for  the purchase of their own shares.  Most commonly this would arise in a management buyout where the bank funding the transaction would lend to the Newco formed to effect the transaction - but of course the security for the lending was provided by the target.     The granting of the security being financial assistance.  It could also arise in plain vanilla M&A deals if for example fees were being paid out of the target.  

Some lawyers saw financial assistance lurking behind every bush - much to the frustration of the other advisers.      We closed a deal earlier this year involving a number of companies, where we had to whitewash the lot,  as the buyers lawyers saw financial assistance everywhere.

So Financial Assistance was prohibited, but private companies could go ahead anyway provided they went through whitewash - essentially a declaration of solvency for the next 12 months, supported by an audit opinion.    This provided extra work for the legal and accounting professions, and I guess was supposed to protect the creditors.

The 2006 Companies Act provided for its abolition, and it is finally about to happen from 1 October.    So the whitewash will become a thing of the past,  deal costs in MBOs should decrease marginally without this extra step, and a  fewer trees will be felled to produce the legal documentation.

It remains to be seen if the banks will insist on some similar procedure to be incorporated into their due diligence processes as they have probably taken some comfort from it to date.   But there are other provisions to protect creditors and regulate directorbehaviour.  And it remains unlawful for public companies to give financial assistance. 

So farewell then financial assistance................