In our blog series we have already looked at “What to sell – assets or shares” and “How to Prepare My Business for Sale” – which deals with the housekeeping preparations that can increase the value of your business, but a frequent question is “How do I find a Buyer?”
It’s an oft-quoted statistic that 70% of owner-managed businesses are owned by people approaching retirement age. Like all statistics, that should probably be taken with a pinch of salt, and it is arguably true that many people only have the skills, time and financial wherewithal to run a business in their later years, but this statistic is often quoted as evidence that there will soon be a tidal wave of business sales.
That probably isn’t the case. Many businesses are too reliant on the personality of the owner to have much value as a stand-alone entity, many are quietly passed on to family members, many are liquidated. In reality, if you want to sell your business, you probably want to start positioning yourself for an exit at least 3-5 years before your retirement deadline. This is (a) because it can take that long to prepare your business for sale and find a buyer and (b) “stuff” can happen – the financial crash; Brexit, the Covid pandemic are all examples of things that affect business value, were not wholly foreseeable and which will have altered some people’s expectations of their exit route (sometimes for the good – one man’s crisis is another man’s opportunity).
But let’s assume that you feel ready to exit now, or in the near future; how do you find a buyer?
You may find that you are on the receiving end of emails from Company search agents offering to sell your business at attractive valuations and stressing that they have an enormous database of hungry buyers looking to snap up your business. Without wishing to tar all these operators with the same brush, some of these outfits operate on the basis of a large up-front “search fee” (think five figures) which is non-refundable if they don’t actually find a buyer. By all means pick up the phone to these people, but be very careful to check what you will be charged, what will be delivered and by when. Note that whatever promises are made in the promotional material are likely to be excluded in the wording of the contract between you – check that small print very carefully.
The more traditional (and in my opinion, better) routes for finding a buyer are likely to be (in no particular order):
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your staff;
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your competitors;
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your accountants;
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a corporate finance advisor;
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your solicitors.
Dealing with these in turn.
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Staff – if you have ambitious managers working for you, it may be that they have the managerial skills to take the business forward, but not the cash; however, depending on the nature of your business, it may be possible to structure the sale by having an initial purchase price and an element of deferred consideration; the initial consideration might be raised via traditional bank finance secured on the assets of the business/personal borrowing/invoice discounting (or a combination thereof) and the deferred consideration funded by the business’ cash generation over time. Another alternative (which we discuss briefly at 4 below) would be venture-capital funding;
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Competitors – are often the most likely to understand the true value of your business and its worth in the marketplace, and most business sales are to competitors; if you are not on sufficiently friendly terms to approach them directly, or are concerned that news of your potential exit may spook customers or suppliers, they can be approached on a “no-names” basis via an intermediary; which brings us on to:
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Accountants – many national or regional firms of accountants have corporate finance arms, or a partner responsible generating business sales; these will often have access to the same sorts of databases of potential acquirors that some of the business sales agents possess, as well as a client portfolio that they may be aware are on the lookout for acquisition opportunities. It would be worth your while having a brief chat with your audit/accounts partner to see if this is a service they offer, or whether they have any other contacts they could recommend.
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A Corporate Finance Advisor – these may often be found within accountancy practices (see above) or as stand-alone practices; their core business is to match sellers with investors, whether these be competitors in the industry, inward investors looking to establish a footprint in the U.K. or venture capital funds or other investors looking for targets to invest in, and to put deals (and the finance for deals) together; they can also match investors with management teams for Management Buy-Outs (where the existing management team purchase their employing company in conjunction with an investor who takes an equity stake) or Management Buy-Ins (similar to an MBO but where a new (or additional) management team are parachuted into a purchasing vehicle used to buy and run the Seller’s business). CF Advisors will have a minimum deal size they may be interested in (which will vary from outfit to outfit) and many have sector specialisations (e.g. pharma, biotech etc) beyond which they will not usually stray.
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Solicitors – whilst your solicitors will usually be constrained from deal-making by their conflict of interest rules, they are (together with your accountants) usually a good sounding-board in relation to your exit plans, and can suggest contacts (e.g. accountants with M&A expertise, suitable CF advisors etc.) who may be able to assist you in finding a Buyer and/or putting a deal together. At Allan Janes we have a good portfolio of local contacts that we can recommend to assist you.
The above is a very broad brush introduction to the first steps in putting together a deal and does not seek to cover every available option. If you are thinking of selling your business, and would like to talk through the possibilities, don’t hesitate to contact our Corporate Partner, Iwan Emanuel on 01494 893570 or at iwan.emanuel@allanjanes.com