An outstanding business, with great growth potential in an expanding market and strong recurring revenue, will always command a premium value. It can, however, take many years to design and create such a business, and often it requires time, capital, the right team and place. So, if we put aside the exceptions, how can you maximise the value of an ordinary business? There are three essential components: preparation, presentation, and process.
Preparation
We recommend a review of your current business strategy before a sale. How can your business stand out against the competition? Which areas of your market should you focus on? How can you reduce income risk by increasing recurring revenues or pushing into a more diverse client base? How can you increase productivity, as this is a key element to success and how do you increase margin, despite volatility? Our approach is to examine three areas – firstly, a cost-reduction exercise; secondly, investment in technology and your IT platform; and finally, a review of your key suppliers. Productivity needs to be team-driven as a business dependent on owner-managers is perceived as a higher risk by potential acquirers.
Do your vendor due diligence on your organisation to prepare for a sale. Buyers will carry out an in-depth exploration of all aspects of your business – commercial, legal, cultural, and financial. By collating this information upfront, you not only create a better marketing data room, but you can also prepare for buyer questions and enquiries and identify and address any pre-sale ‘red flags’.
Presentation
Buyers will be influenced by presentation and accuracy with a balance of information versus a well-honed presentation. The question ‘what is in it?’ for the acquirer should be central, but the information should be crafted.
It is important to note that real-time financial information, particularly on work-in-progress and forecasts, is critical. At Avondale, we present information using a marketing data room. This not only positions the business and drives the ‘we want, we need’ motivation of potential purchasers, but it also creates sufficient transparency for buyers allowing bids from anywhere in the world. We aim to reveal your business and the real opportunity that the acquisition creates in a bespoke way that hooks potential acquirers. We must demonstrate the prospects rather than sell them. This requires the collation and presentation of the right information modelled in the right way.
Process
Different buyers will have different motivations with little consensus on what your business might be worth. The best buyers will pay for the future opportunity that acquiring your business represents. This means that the optimal way to negotiate the best value is through careful research to create multiple bids. The right approaches to the right buyers to create bids and competition through an ‘auction’, against an invite of ‘offers’ (no price guide).
By creating a choice of buyers all acquirers will have the same information which ensures a level playing field and if bids remain at similar levels, a final, sealed bid may be invited. The highest bidder in this process is usually declared the winner, although other aspects such as deal structure, track record, culture, funding, and timetable will all be important decision drivers.
Research is critical to ensure engagement with the right buyer. Ultimately, there will be a choice of acquirers from which you will select to whom you will grant exclusivity. This will depend on their financial position, ability to complete a deal and track record. A trade sale is not always the best route – sometimes investment sales and in particular, partial exits, where vendors retain a stake, can also be very exciting. negotiate from there.
Contact Avondale Corporate
Avondale is a leading business sales advisor that helps ambitious owners like yourself buy and sell companies, secure investment, grow their business, and enhance shareholder value. A trusted partner of exceptional quality and a 30-year track record, we can deliver your success.
So, if you are looking for advice or an exploratory discussion without obligation for your “perfect” trade sale please contact Avondale Corporate at +44 (0)1737 240888, our Contact Us page or email av@avondale.co.uk for further information. Alternatively, you are invited to join our next webinar “How to improve the saleability of your business” on 16th March 2023 by registering here.
