Last year I met with the owners of an engineering business because they had had an approach from a possible buyer for their company. It was a good business, and the owners liked the people who had approached them. At the same time they were wary of business brokers (having previously signed up a big company which had charged up front fees yet achieved nothing) and of the perceived disruption of a sale process. They also felt that their business had an intrinsic value that the buyer was bound to appreciate and to pay.
I can understand their reservations – but the idea that a buyer would blithely cough up the “business value” – even if it could be known – is dangerous. This ignores the huge amount of the exit value which is down to a good exit process.
How a business is sold has as much to do with the eventual value obtained as the characteristics of the business itself. If you are selling a house you can get a good idea of what it’ll go for based on the other houses on the street, you can even do this yourself using Zoopla. That makes selling a house much more about finding the buyer rather than extracting the value. And yet some business owners believe their business has given value and once the right buyer comes along, a deal will get done at their price. Alas nothing could be further from the truth, for a number of reasons:-
- Business value is much more subjective than property and other assets. You can’t go and get definitive comparables for businesses. The packaging and process play much more critical roles when selling a business.
- The “best” buyer for your business might not be “on your doorstep” nor a close trading partner or competitor. If you have a decent sized business the best buyers might be scattered all over the world. Appreciation of business value is pretty subjective and so you will need to court multiple motivated buyers. This takes a lot of specialised knowledge, skill and perspiration.
- The devil is in the detail in most M&A deals. Many companies for sale will have amongst their circumstances a few potential deal killers. A skilled advisor is essential for avoiding these “unexploded bombs” and getting the deal done.
- Selling a business is a sales process. Without good comparable sales data (i.e. competing offers), it becomes a negotiated process.
- Most business buyers know what they’re doing and are intent on buying low and out-negotiating their adversary on the deal terms. You need to at least match their knowledge of the art of the deal to can maximise value for the seller.
Alas some folk, like the owners of the business I spoke to last year, try to do it themselves or delegate it to their lawyers or to the local accountants. Even if the seller thinks he’s done well, money has probably been “left on the table”. Selling a business is complex. There are a lot of moving parts and many business owners and, and especially accountants, don’t quite realize it. They think that because they’ve been tangentially involved in a few deals they can run a process and manage it effectively.
Selling a business for maximum value is the realm of the specialist. Company owners fail to hire one at their own risk.
Business sale value upon exit is made up as follows:
What you get for your business = Enterprise Value + Packaging + Process + Deal-Maker Skill
Enterprise value is the intrinsic value of the business. In theory this might be obtained by the DIY business owner/seller or the novice business broker (if they can sell it at all).
Packaging is putting together the Information Memorandum. Skilled packaging can in itself make the difference between a sale and no sale.
Process includes both process design and execution, and it’s about locating the highest and best buyers and working them all at the same time.
Deal-maker skill is the secret recipe. It’s the skill, knowledge and experience of the individual (or team) running the process through to closing.
In short, there is real benefit to be had from working with a specialist M&A adviser, a specialist in company sales. Look for someone with demonstrable experience, plenty of credentials to be found on the internet, and someone who will help you get the deal across the line. Ask your peers for references, talk to your existing lawyer or accountant, search the Internet.
If y ou are thinking of selling, which you will surely have invested lots of personal and financial capital into, then its worth getting the right people working alongside you to make it happen.