Selling Your business for a Premium - Tom McKaskill

Securing a Strategic Buyer

Time Date 01-Jan-9999 Venue Speaker Seat Available: N/A

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Selling Your business for a Premium
Tom McKaskill

This is a synopsis only. RESULTS.com recommends you buy the original book.

Pro-Active Trade Sale Strategy

• A business should always be ready to sell.

• To maximize the sale price of a business you need to plan an exit strategy well in advance in order to maximize value.

• Selling on an earnings-based formula to an interested buyer or via a broker is not an ideal way to maximise the sale price.

• If you take the time to prepare your business for sale your Return on Investment (ROI) will be very significant in terms of the premium price you will get
  You will be prepared for any eventuality outside your control i.e.

  • Ill health

  • You want to retire and staff are unable to buy you out

• You are in a powerful negotiating position if you are able to position your company in front of potential buyers as either eliminating a potential threat or creating an opportunity for them (or preferably both)
  Solicit multiple buyers.

• Put time pressure on potential buyers to extract maximum value.

• Use professional advisors as intermediaries in negotiations

The best strategy for the seller of a business is appeal to multiple buyer needs: 

• Reduce a threat to the buyer

• Create an opportunity for a buyer by providing them access to new markets, customers, processes, technology, or revenue streams

• Offer the buyer leverage / scalability – i.e. if you can increase their sales well beyond their existing capabilities they will pay a premium price to purchase you

Pro-active Trade Sale Process

• Few companies take the time to develop a strategic plan for selling their business

• Most just sell their business because they have to, or the owner has no successor, or they have just ‘had enough’

• The result is:

  • Little understanding of risks for potential buyers and how to mitigate them

  • Documentation for due diligence by potential buyers is not available

  • NNo relationships developed via networking with potential buyers

  • The timing of the sale may not be ideal in terms of getting the best price

  • The structure and systems may not be developed to maximize value

  • Key staff may be lost due to uncertainly

  • After sale scenarios not planned for

Ideally a company should be always prepared for sale

• Networks should be cultivated and people made aware of the capabilities and potential of your business

• When it comes to selling the business you do not plead to be acquired - instead you position the strategic nature of such an acquisition and put it up for bid among several

• possible buyers

• Preparing your business for sale enables you to move quickly when the time is right or an unexpected opportunity appears

• Let your industry network know when the buying process has commenced so you can attract additional bids.

Present buyers with a scalable / leverage-able opportunity that helps them to do one or more of the following:

• Increase revenue

• Reduce costs

• Achieve economies of scale by combining their business with yours and rationalizing the 2 operations

• Get access to your better technology, marketing, sales process

• Increase their customer penetration or purchase frequency

• Enhance their existing product sales

• Sell new products to their existing customers

• Add more products to their portfolio

• Use their existing distribution channel to sell your products through

• Re-brand your product / service as their own

• Increase their customer numbers by buying your customer database

• Expand their distribution channel

• Acquire customers at a lower acquisition cost than through traditional marketing

• Break into a new market category

• Acquire synergies with their existing business

• Acquire capabilities that they lack themselves

• Counter a competitor threat

• Get out of a declining industry / category 

Identify potential buyers:

Who makes money when – I make money?

• Vertical integration - suppliers / distributors who may buy you

Who does not make money when I make money?

• Competitors may want your products, customers, contracts with suppliers, customers, technology, R & D capability

• Competitors may want to eliminate you as a threat

Who can make more money than I can from my products?

• A buyer with a larger customer base or better distribution channel, or access to finance for growth / expansion / export etc

Who has a problem I can fix?

• A buyer may quickly need your capabilities, products, processes, technology, distribution, customers, people, expertise

Who has a threat I can eliminate?

• A buyer who is faced with losing their supplier / distribution arrangements

• A buyer faced with new competition

Who sells to the same customers I do?

• A buyer wishing to diversify / cross sell

Who uses the same technology I do?

• Ease of acquisition and merger

Who needs my customer database?

• A buyer who wants to break into new markets and understands their customer acquisition costs – and realizes it is cheaper to buy your customers than to attract them through marketing

“Put yourself in a potential Buyers shoes”

• Where will the merged business be located?

• Are there any duplicated assets that will be surplus to requirements?

• How will these be disposed?

• Staff duplications / redundancies?

• What will happen to employee share options?

• Can existing health insurance, superannuation, holidays and reward systems be transferred to a new owner?

• What will happen to existing customers, suppliers, distributors, and their contracts?

• What partnership / alliances need to be terminated or protected?

• What potential litigation will need to be resolved?

Ideal conditions for sale

• Time on your side

• More than one potential buyer

• They have urgent problems / threats

 Limitations to obtaining a premium sale price for your business:

• Your firm’s knowledge is inside the heads of your key people and not documented into a process

• Your business is dependent on a small number of critical individuals and their relationships

• Your processes are not standardized to enable new people to quickly get up to speed

You need to remove or reduce these risks to the buyer:

• Non-standard customer / supplier contacts

• Harsh lease conditions

• Unprotected IP

• Overly generous reward schemes

• Poor quality equipment

• Poor process and systems documentation

• Poor sales process and conversion rates

Ensure major stakeholders’ agendas are aligned well in advance

• Get all your stakeholders working in the best interests of a positive sale outcome

• The more issues you deal with in advance the easier the negotiations will be

• Will they veto any sale proposition?

• What are their minimum conditions in order to agree to a sale?

• What level of involvement would they want in any negotiations?

• Lock in key employees if they are required to smooth the transition or they represent a competency a buyer may wish to acquire

• AAlternatively create retirement or redundancy package that empolyees agree with

• Key stakeholders need to accept that new owners will want to make changes that you may not necessary agree with

  • Changes in structure / personnel

  • New conditions of employment

  • Changes in products / distribution / location

  • Sale of parts of the business

Do your own due diligence on your firm before the buyer does/p>

• Can your business run successfully without buyer intervention?

• Aim to reduce potential risks for purchasers by showing that you fully comply with all regulations and your business is well managed

• Monthly financial and Key Performance Indicator reporting system in place

• Updated / comprehensive business plan

• They may want to make changes but if they know the business can run effectively and efficiently without any intervention they may leave it like that for a period of time while they concentrate on maximizing synergies

• Alternatively a good business plan may provide the evidence they need of the growth potential of the business

• Formal forecast budgets are prepared and performance is actively monitored versus budget and deviations understood and proactively managed

• Standard contracts, good relationships and goodwill exist with suppliers and distributors and customers

• Formal systems exist for complaints and disputes resolution

• Good employee management, appraisal and reward systems are in place

• Good credit rating and bank relationships and good credit rating with suppliers

• Contracts are able to be assigned to purchaser without needing the permission of the other parties

• IP is protected and able to be sold

• Industry standard employment conditions - salary and benefits

• Share option schemes compliant with stock exchange regulations

Your due diligence file should contain

• Supplier and customer contracts

• Licenses, patents, trademarks

• Leases, hire purchase agreements

• Employment contracts, health insurance, superannuation, bonus schemes

• Complaints process, dismissal process

• Performance management system

• Quality control systems

• Inventory management system

• Financial reporting system

• Reference checks from customers / suppliers and key professional advisors

• Back ground on key staff

• Property / asset valuations

• Full position descriptions

• Full description of business systems and processes

• Bank and loan details

• Shareholder agreements and options

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