Selling your business
Many entrepreneurs start a new business with an exit in mind. Others give little thought to selling their company until circumstances dictate or opportunities present themselves. Whatever the approach, it will be one of the most significant financial transactions of your life.
It is a move requiring careful consideration, not least, being clear about your reasons for why you are doing so; prospective buyers will want to know your motives for selling. You also need to think about how you are going to sell, for example, to another business that operates in the same or a similar sector, to a private investor, or via a management buyout.
From a partnership to a sale
In 2001, Simon Squibb started the agency fluid design + marketing in Hong Kong, along with creative talent Helen Griffiths. They had spotted an opportunity in the digital space following the dotcom crash, where brands could learn to leverage the gap left by the collapse of many dotcom firms to build a digital strategy for their businesses. fluid successfully attracted major clients such as CNN, Credit Suisse and Estée Lauder.
In 2016 Squibb sold the agency to PwC, enabling them to offer the agency’s digital capabilities to their clients. At the time, he hadn’t been looking to sell. He says: “It started as a partnership and turned into a sale. I had no target buyer in mind, and in my view, it was the best way to do it.”
From an initial expression of interest from PwC to acquisition took around 12 months, and the sale was completed with no help from experts on the part of Squibb. He says: “I just made sure that our business was transparent on the financials from day one and that the business processes and systems were easy to understand. This ensured there were no red flags along the way.”
Frustratingly for him, news of the sale was leaked early to the media. “As the founder I wanted to break the story myself,” says Squibb. “But this does often happen in these high-profile deals within an industry - although it almost caused the sale to collapse!”
His advice to other entrepreneurs planning the sale of their business is to do it when they neither want nor need to sell it. “This will help you sell it for the price you want,” says Squibb. He also advocates bringing in management who can replace your function in the company after the deal is agreed. “This ensures that you are not locked in on a long earn-out,” he says.
Preparation is key
At 31, Ben Doltis sold his two executive search firms before launching his own M&A advisory business, PCB Partners, that advises buyers in IT services and marketing and HR services ecosystems on how to attract the right sort of entrepreneurial businesses.
Instead of focusing on the possibility of a sale, his advice is to focus on creating a business that is the best in its space and then the rest will follow. “Have a clear USP, deliver great outcomes for your customers, and surround yourself with the best people you can find,” says Doltis. “Doing this will maximize your chances of a successful exit when the time is right.”
One of the biggest mistakes that sellers make, he says, is being unprepared for the sale. Often they have rushed too quickly to market which creates difficulties during the due diligence process and eventual value erosion. Sometimes it even leads to the whole deal collapsing.
Other factors that could also seriously hinder a sale are differing shareholder views and objectives, and owners failing to track their financials closely enough and as a result, being unable to deliver those numbers during the sale process.
Doltis adds: “It is important to build relationships with potential buyers or investors in the market ahead of time, and ensure the acquiring company will be bringing something complementary to your business, whether that’s to the company’s geographical footprint, customer offerings or balance sheet.”
As was the case for Simon Squibb, it is possible to complete a successful sale without professional advice and support. However, Doltis believes that preparing well in advance and engaging the help of a trusted corporate finance adviser is the key to a successful sale. He says: “A financial adviser will help you understand your equity story, scrub your numbers, map the market for your competitors and potential buyers, and ensure that all your paperwork, including contracts, etc., are in order.”
What buyers want
While selling a business is about much more than just the money, it’s helpful for sellers to know how prospective buyers approach acquisitions and how much of a decision, or even a declaration of interest, concerns the price tag.
“Price is an important factor when assessing an investment opportunity, particularly in the current market environment where it is more difficult to generate value by simply relying on market tailwinds,” says Gabriele Cipparrone, a partner at U.K. private equity firm, Apax Partners. “Buyers look for opportunities to invest in businesses that can increase in value throughout their investment. In the case of the Apax Funds, this means looking for hidden gems; businesses with strong fundamentals that have not yet reached their full potential, and operate in attractive sectors.”
Many external factors can impact a prospective sale, including economic conditions. An uncertain macro environment can affect valuations, the availability of financing, and access to capital markets. Technological disruptions, such as the development and potential impact of AI artificial intelligence and regulatory uncertainty are factors that can also affect the outcome of the sale.
Nevertheless, businesses with strong fundamentals, operating in attractive markets are very resilient and always in demand, as seen in the recent economic downturn.
“To mitigate the impact of external factors on a prospective sale, entrepreneurs can maintain a dialogue with experienced investors who know their sector well and have a strong track record across economic cycles,” says Cipparrone. “Such investors should be able to recognize the intrinsic qualities of a business, conduct efficient due diligence, and minimize the risk of a failed sale process, even in a challenging market environment.”
