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Planning for exit

 

Posted on 17 March 2016

Deciding to sell your business is no doubt going to be one of the biggest decisions you ever make and is therefore not one which will be taken lightly. Whether it is an entrepreneur realising their life’s work or a corporate group divesting a non-core operation, the sales process is going to hold a high level of importance.

Selling a business is a complicated process which needs significant input from a range of different parties including corporate finance advisors, lawyers, bankers and, importantly, the vendors. Due to the complexity of the transaction it will typically take at least 6 months from start to completion.

There are a large number of tasks which contribute to the complexity of the transaction including:

  • Assessing and valuing the business
  • Timing the sale to optimise value
  • Finding the right buyer
  • Negotiations on price and terms
  • Due diligence
  • Concluding the sale – including legals 

To achieve the best results from the sale of your business it is important to engage with advisors at the earliest possible point; this point varies from business to business but is typically around 2 years prior to the expected exit date. This will enable your advisors to work alongside you and plan how to make the business as attractive as possible by maximising profit and cashflow (and its future sustainability), minimising or removing any issues that could depress value, and hopefully timing the exit to capture rising trends in the business itself, in its sector and in the economy generally. This will involve, amongst other things, the following tasks:

  • Reviewing financial matters such as profit margins, costs, order book, tax, pension schemes, accounting policies and identifying surplus assets.
  • Review of property matters including leases, renewals, rent reviews, restrictions, dilapidations, environmental issues, permissions, etc.
  • Ensuring that the management team is in place to enable the business to run efficiently without the vendors’ input, and a careful review of all HR matters to ensure compliance.
  • A legal review to ensure that all contracts including trade, employment, ownership of intellectual property are in place and to check compliance with legal governance requirements.
  • Provide advice on strategic decisions to assess whether the decision would enhance or detract from value from a purchaser’s perspective.

Performing all of these tasks at an early stage, well before the sales process starts, enables the start of an electronic “dataroom” of information that will be required in the deal process, ensures that no surprises arise in the diligence phase of the deal, optimises the speed of the process, and minimises the risk of a ‘price chip’.

Your advisors will also be able to identify market factors which may indicate the best time to start the sales process. These include:

  • The acquisition strategies and activity of major players in the sector.
  • Recent increases in the valuations of businesses within your sector.
  • The current state of the economy and the mergers and acquisitions market.
  • Impending legislation changes affecting the business or the vendor’s tax position on sale.

The team at Smith Cooper Corporate Finance would be delighted to have an initial discussion with shareholders who are considering selling their business or divesting a group company.

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