ICON66 – Volume 7
Selling Your Business: Are You Ready?
Name: Declan Kavanagh, CEO
Company: Insight Test Services
Sector: Software Testing
Email: declan.kavanagh@insight-test.com
URL: www.insight-test.com
ICONs: My Dad and Richard Branson
Insight, based in Dublin, is a market leader in software testing services, primarily for major clients in the financial services, utility, ICT and public sectors. Founded in March 2003, the company has grown rapidly to become the leading software testing provider in both Ireland and the UK. Declan Kavanagh, Managing Director of Insight Test Services talks to ICON’s Head of M&A, Brian Parker, about the sale of his business to Sogeti.
Declan, you sold your business to Sogeti, are you still involved?
Yes, very much so as our deal structure involved an initial payment and then a one year earn out, with a further year retention, so it’s all hands on deck at the moment as we push to maximise our earn out. Insight’s a young, high growth, people business and so we always expected that a deal would involve some sort of earn out/retention and we were prepared for it so all the shareholders have remained with the business after the sale. We also spent quite a lot of time during the legal negotiations securing the protections that we needed to allow us to control and manage the operations during the earn out period.
Looking back to the period running up to the sales process, did you plan it or did it just happen?
When we started the company in Dublin in 2003 the shareholders had a clear vision that we would like to sell in 5 years. From the very beginning we had that in mind and so decided to do things right and use Best Practice in all aspects of the business from financial controls, staff and client contracts, service delivery processes and policies.
Our focus wasn’t on selling the company, it was very much on building a good business as we knew someone would want to buy us if we did this well. Importantly, we also appointed a Non Exec Chairman, who had experience in our sector and added considerable strategic weight behind the business.
So did you get those approaches you were looking for?
Yes we did. The business scaled rapidly both in Ireland and the UK on the back of some
significant blue chip client wins. That started to get us noticed by our competitors and it led to a number of approaches last year.
Selling the business at this time fitted in well with our 5 year plan, so the next stage was to appoint experts who could help us maximise our deal value. We ran a pretty rigorous selection process and appointed ICON and O’Donnell Sweeney Eversheds as our respective corporate finance and legal advisers.
Did you get many offers for the business?
Yes, we had 5 offers from potential acquirers in Europe and the US. Ultimately we chose
to go with Sogeti as they represented the best offer both financially (with its cash and earn out structure) and strategically, given their global presence. Their final offer was a lot more attractive than their first and that must primarily be down to the competitive tension created by ICON between the potential acquirers, which significantly improved our deal terms.
What were the biggest challenges in selling your business?
There is no short answer to that, as there are so many issues with which you are unfamiliar. Maintaining the balance between running the business and keeping the deal on track requires a huge amount of energy.
Time is not your friend in the weeks running up to the sale, so make sure that you have prepared properly. Amongst other things you need a good management team behind you as you have to be devolved from day to day business issues; I’m lucky enough to have a strong management team alongside me, which included three
of the founder owners. You also need a good corporate finance adviser to drive the process but it’s also important that you can get along with them, as they will be part of the team for up to six months.
There are also the less obvious challenges such as maintaining consensus amongst your shareholders on key issues. Becoming part of a large French listed group with over 18,000 staff also meant that we needed to prepare a proper integration plan.
It was a tough but rewarding experience. Now, Brian, you’ll have to excuse me as I have to run – after all, I have an earn out to focus on.
Selling Your Business: Are You Ready?
Declan's Top Tips
- Ensure your business processes and records are in good shape well before the transaction process starts.
- Appoint professional advisers who have the experience and style that suit you.
- Tidy up any potential shareholder issues before the transaction.
- Be open, honest and straight with prospects.
- Confidentiality is vital. Ensure Non Disclosure Agreements (NDAs) are signed to protect your IP.
- Make it competitive unless there is a crazy high offer on the table. Get a simple deal structure, well documented in your prospective purchasers “letter of intent” (LOI).
- Maximise up front cash, shorten earn out and lock in periods.
- Do due diligence on your prospective purchasers short list.
- Don’t take the eye off the day job, selling, delivering, managing.
- 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.
- Avoid employee share option plans (ESOPs), use a sale bonus structure paid through payroll to incentivise employees.
- Don’t allow integration or interference if there is an earn out.
