How Best to Sell your Business

Transcription

1 ICEF Berlin 30th October 2016 How Best to Sell your Business Jack Coronna, & René de Jong

2 Jack Coronna Why and when to sell your business? What to look at before? How to market your business? DIY or get help? René de Jong What price to expect? What to consider negotiating the contract You Questions

3 Why and when to sell your business? Do not allow yourself or your business to get past the sell by date You never know what will happen, world events will impact on the timing of selling your business Focus on growing the company and aiming to become a market leader You will be in the strongest position if you sell because you don't have to Jack Coronna

4 Why and when to sell your business? Ask yourself if you are mature enough to sell your business Consider how your life will be once you have sold your baby Can you get enough money to finance your needs once the business has gone? What are you going to do after your business is sold? Jack Coronna

5 Why and when to sell your business? If you invest in new ventures, make sure that you have enough left from your sale to cover your life style in the event of failure If the purchase price is split between cash and shares, make sure that the cash lump sum is enough to cover your needs when share price declines Ensure your key team players are aware of your plans, but don t let your staff know Tidy up your business Jack Coronna

6 What to look at before? How to market your business?

7 What to look at before? How to market your business? Value Driver 1: The quality of your business Value Driver 2: The quality of the sales process

8 Value Driver 1: The quality of your business Attractive profit & revenue line Take opportunity of a good financial year Push high margin sales Maximize profitability Cut dispensable cost Take out private spending Make yourself redundant Strong management Bind key staff by incentives

9 Value Driver 1: The quality of your business Diversify customer base Get less dependent from single customers / countries Increase recurring revenue instead of one time sales Consider change of ownership reaction of main customers Cleanup the balance sheet Get rid of non-core assets and privately motivated cost Stop typical shareholder expenditure habit Pay back private loans and reduce the working capital If there is a private pension scheme, consider to take it out of the company

10 Value Driver 1: The quality of your business Financial controlling Prepare accurate and reliable financial statements for the last three years, if possible audited Get most important KPI's for your industry Be aware that inaccurate financials are often a deal breaker Tax checkup Check tax implications of the sale well in advance Bear in mind that a change of the legal structure might be advisable

11 Value Driver 1: The quality of your business Legal checkup Ensure third party contracts are in place and current, including employment contracts Check if your IP is secured Make your company structure or shareholding simple Consider buying out minority shareholders Sort out pending litigation and compliance requirements Internal processes Make sure there is an organisational chart with clear responsibilities Check if all internal processes are lean and efficient enough

12 Value Driver 1: The quality of your business Premises and equipment Ensure premises and equipment look neat and modern Get rid of obsolete stuff

13 Value Driver 1: The quality of your business Compared to renovating a house your cleanup will only take time Always polish your company with the prospective buyer in mind

14 Value Driver 2: The quality of the sales process 1. Teaser & Long List List of potential buyers, ideally more than 10 candidates Anonymised teaser providing some very basic information 2. Short List & NDA Selection of seriously interested parties Non disclosure agreement (NDA) Important to create competition 3. Information Memorandum Should give a clear picture of your company Key sales document and a substantial piece of work You have to accept handing out internal information Very important: You will not mention a purchase price!

15 Value Driver 2: The quality of the sales process 4. Indicative Offer or LOI (Letter of Intent) Indicative offer stating a purchase price and describing structure of the deal The letter of intent is not legally binding for both sides Buyer will often ask for exclusivity for the next steps 5. Due Diligence When exclusivity was granted, only one buyer will undertake DD Maximum should be two or three, as it gets very labour intensive Information will be provided in virtual data room Data room allows seller to keep full control over how and when information is revealed

16 Value Driver 2: The quality of the sales process 6. Management Presentation Discussion of DD outcome First contact to management Potential conflict of interest between seller and management 7. Negotiations / SPA Share purchase agreement (SPA) outlining the legal details of the deal Experienced lawyer necessary Guarantees and liabilities 8. Signing & Closing Deal gets binding for seller and buyer by signing the SPA Seller be will bonded to business by guarantees and liabilities for years Part of purchase price can be escrowed to secure guarantees From start to signing it typically takes 4 to 8 months

17 DIY or get help? Legal Advice Highly recommended to hire experienced lawyer High fees, but less risk for the seller M&A Consulting Helps making your business ready for a sale Makes first approaches, so you might remain anonymous Prepares IM Can play bad cop in negotiations Lets you concentrate on day-to-day business Should pay off for itself by getting a better deal Solicitor Compulsory in most countries Typically paid by the buyer

18 Typical fees of M&A Consulting Work fee Pays the M&A advisor s direct costs during the initial stages, Flat fee, monthly allowance or hourly rate (not recommendable) Covers risk that seller pulls out for a reason, advisor cannot influence Not automatically more work involved to sell a company for 10m than for 500k Work fee most likely not below , larger consultant firms hardly interested for amounts less than Success fee Range from 2% to 8%, depending from deal size Lot of success fee models possible Often work fee can be credited against final success fee

19 What price to expect? Property (real estate) Intellectual property (IP) Sources of sales Market position Available synergies for the buyer Make or buy for the buyer Net Asset Value / Debts René de Jong

20 Things to consider and prepare for SPA Paperwork Non compete Period to stay on and possible earn out Contingencies NAV Postponed payments René de Jong