How can business owners ensure that the sale of their business runs as smoothly as possible? Adam Dowdney, partner and corporate and commercial head at IBB Solicitors, provides some practical guidelines:
Understand what you want to achieve by the disposal at the outset
Selling a business doesn’t always equate to retirement or a complete handover, as some buyers will see one or more of the selling shareholders as integral to the business – at least for a certain period of time to fulfil synergies and integration.
However, if you want to agree a full exit, this will need to be raised to a potential buyer at the beginning. Alternatively, you may see this opportunity as a chance to take on a different role in the ongoing business or reinvest in the acquiring entity. So consider at the outset what you want to achieve from the disposal process.
Finding the right buyer
Corporate finance specialists working in different industry sectors understand the key drivers and potential acquirers in a particular market, so this is one key route to help find a potential buyer. In addition, most sellers are keen to find the right fit for their business and know their marketplace well. They may also know who could be interested in their business and where the strategic value will lie for a potential acquirer. Remember, this is a two-way process and you will need to ‘check out’ a potential buyer – make sure your advisers are involved in the due-diligence of any potential acquirers.
Do everything to ensure your business is in the best possible shape
It can take between 18-24 months to get a business in the best shape to maximise value. Make sure you start the preparation as soon as possible:
Ensure all employee contracts have restrictive covenants and all key customer supplier contracts are up-to-date;
Check for change of control provisions in key contracts, so any notification and consents can be obtained early;
Check that all relevant intellectual property is owned by your business;
Check your business is up-to-date on data protection issues;
Involve your accountant and lawyers in the process as early as possible so they can ensure your business can secure the optimum valuation;
Check that both sides have suitably qualified advisers on board – don’t cut corners. If you feel other advisers could slow down the process or do not have the necessary expertise, speak up early.
Finally, while deals do take a while to complete, they don’t have to drag, so ensure a sensible timetable is drawn up.
Managing the process with your employees
Avoid telling employees about any proposed changes too early as this could unsettle them and lead to them losing focus – this could cause the profitability of the business to suffer.
However, key advisers and project managers who will be integral to the process in the run up to the sale will need to be advised at an early stage. If you are worried about confidentiality being breached, then ensure anyone involved signs a non-disclosure agreement.
Have clear ‘Heads of Terms’
Make sure Heads of Terms are drafted early – this is an important outline document which sets out the key terms of the deal. While most terms are not legally binding, it provides an invaluable framework for discussion between both parties ahead of progressing the specifics of the deal and drawing up the sale and purchase contract.
It is important that the seller and buyer are honest and transparent at the outset. It is far better to raise any potential deal issues at the beginning than ‘bring up a surprise’ during the deal process or worse, just before the deal is about to be signed. Buyers do not like surprises – they can affect the price or even cause a buyer to withdraw from the process.
Beware of deal fatigue
The process of selling a business can last months. Avoid getting deal fatigue and a buyer taking advantage because they know you are keen to complete. Do not lose focus on the ongoing needs and management of your business and remain steadfast and keep to your price.