Articles
Selling Your Company Are You Ready? Top Tips
ICON 66, July 2011
Selling Your Business Are You Ready - Top Tips
There are lots of way you can go about maximising your exit value but the key areas to focus on are:
1. Get your house in order to make sure things run smoothly during the due diligence process - so ensure your business processes and records are in
good shape well before the transaction process starts. Build systems that enable the business to scale.
2. Build your second tier management team to take the business through post acquisition.
3. Appoint professional advisers who have the experience and style that suit you.
4. Tidy up potential shareholder issues before the transaction.
5. Growth, acquirers want to buy a business that's still growing, the more you can demonstrate that your business has grown and will continue to grow, then the more a buyer will pay. Your acquirer is buying the ability to generate future cash flow and therefore needs to buy into your growth story. The shape of that growth is also important, if you've got a business that's growing rapidly, then dropping away, and then flattening out to grow again, it creates uncertainty. A lumpy earnings pattern is difficult to value so the smoother the picture that you can paint the better.
6 Profits are mandatory; you've got to be generating cash flow if you want a cash deal for your business. Not to say that you can't sell a loss making business, but clearly if you want to maximise the value, you want to look at maximising your profits in the run up to your exit.
7. The revenue model is also important, if you want to maximise the value of your business then you need to work at getting recurring revenues up.
8. Time your Run so make sure you go out at the best time for your particular business and your particular circumstances. Timing your run is a key consideration, the best time to go to market and to get your best valuation is when all your stars are aligned, not only does your company need to be growing fast, be highly profitable ideally but also your sector needs to be hot, and the general M&A market needs to be buoyant.
9. Don't take your eye off the day job, selling, delivering and managing.
10. Make sure that you meet your forecasts, during the process, if you don't, you'll be open to price chipping.
11. Avoid low dependancies, no one wants to pay a lot of money to a business that is too dependent on a couple of customers, a couple of contracts, or a couple of suppliers. The broader that's spread the lower the risk, the more an acquirer will pay you.
12. Make it competitive - competitive tension creates value. Creating and maintaining competitive tension is the best way to get the best deal. To ensure your deal completes, maintain competitive tension, have that competitive threat, if your acquirer doesn't stick to the terms, if they don't complete the deal as they agreed, then they're going to lose out.
13. Be open, honest and straight with prospects
14. Confidentiality is vital. Ensure non disclosure agreements (NDAs) are signed to protect your IP.
15. Do due diligence on your prospective purchasers short list.
16. Get a simple deal structure, well documented in your prospective purchasers Letter of Intent (LOI).
17. Maximise up front cash, shorten earn outs and lock in periods.
18. Don't select your buyer based on value alone, make sure structure, synergies and chemistry are right, if you have to continue working in the business during any Earn Out phase.
19. Don't allow integration or interference if there is an Earn Out.
20. Cash is King
No one has all these boxes ticked but the more ticks you have the better the value you are going to get for your business.
