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Successfully Selling Your Business
The key to successfully selling your business starts with advanced preparation, writes Brian Bergin and David Tynan from PwC.
By taking a cold, hard look at the historical financial performance and disposal “readiness” of the business, prospective sellers can maximise economic return. Therefore, it is imperative that the preparation phase begins well in advance of the planned disposal (e.g. 18 months).
It is essential that the seller views the business through the eyes of a potential buyer. Owners may lack the dispassionate ability to perform an objective review of the overall health and value of the business, and any emotional attachment needs to be tempered by hard realities.
Beginning the Process
As a starting point, you should consider whether the underlying financial records present a comprehensive picture of the overall value of your business. You may be compliant from an audited accounts point of view, but it is important to take a step back and consider whether there are other intrinsic areas of your business that add value e.g. key supplier and customer relationships. Conversely, it is crucial to identify whether there are any aspects of your business that are underperforming or loss-making. Tough decisions must be made early so that appropriate and timely corrective action can be taken.
Ensuring a Smooth Transition
You should be mindful of the potential impact a disposal will have on the other key stakeholders in the business such as your employees, your customers and your suppliers. Focus on ensuring a smooth transition to new ownership, and it is vital that key personnel “buy-in” is secured though open and honest communication. Where possible, it is good if there is a transition period during which the seller and buyer work together to bed in the new ownership structure. Often, business owners may wish to remain actively involved in the business and the buyer may be open to this – at least during the transition phase.
The optimal timing of communication with key customers and suppliers and the ability to transfer key contractual arrangements to the buyers should be contemplated.
Valuing the Business
An independent valuation of the business should be sought before you place it on the market. This will help you to manage expectations through what can be an emotional process. Most deals are usually driven by EBITDA (Earnings before interest, tax, depreciation and amortisation) and it is therefore important that all non-recurring income and expenditure is identified early in the due diligence process.
Negotiating the Sale
When you do enter into negotiations to sell, you need be clear about your Initial Terms – particularly the definition of price. For example, it is normal to allow working capital to be retained within a business but this should be clarified. Remember that businesses tend to be valued on a cash-free debt-free basis, meaning the seller keeps all the cash and pays off all the debt simultaneously upon completion. Keep in mind that the seller may consider certain obligations as “debt-like” in nature outside of the liabilities classified as debt on the balance sheet as they may seek a price reduction.
Maintaining control of information to potential buyers is critical, especially if there are a number of different teams reviewing the businesses. Keeping messaging consistent and ensuring that all parties receive the same level of information will improve transparency in the process. Consider producing a Vendor Due Diligence pack to release to bidders as an alternative to detailed work being conducted through a data room.
Successful Succession Planning
Please be aware that all of the views expressed in this Blog are purely the personal views of the authors and commentators (including those working for AIB as members of the AIB website team or in any other capacity) and are based on their personal experiences and knowledge at the time of writing.
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