As a successful business owner, you have risked your personal capital, committed to years of hard work making numerous personal sacrifices and been on an emotional rollercoaster, enjoying the ups and suffering the downs, of owning your own business. You have now decided to sell and reap your just rewards.
In maximising value, it is of course important to appoint advisers who can identify buyers motivated to pay a significant “strategic premium” for your business and to run a competitive sales process. However, there are a number of features of a business and the market that it operates in that will ultimately correlate closely to the value that you will achieve.
Profitability is of course important but it’s not just about the numbers. There are profitable businesses that will not attract high valuations because of weaknesses in their business model but equally there are unprofitable businesses that will be highly desirable with for example intellectual property or “know-how” that is yet to be fully exploited commercially.
So what are the ideal features of a business for a successful sale?
- Track record of profitability (it’s not just about this year’s profitability but consistent profitability and demonstrating how resilient the business has been in a downturn);
- Size, ie have you achieved critical mass and will you ‘turn the dial’ for an acquirer;
- Well invested;
- High proportion of recurring or repeat revenue to demonstrate the visibility/robustness of your sales forecasts;
- Wide and diversified customer base – ideally you do not want your largest customers to represent a percentage of your sales which is larger than your recent sales growth, ie if you are growing at 20% per annum and you lose your largest customer who accounts for 10% of your sales, the business does not go backwards;
- Scalable with good growth prospects; and
- Cash generative to service financing structure.
Your management team
- Lack of dependency on you the vendor with clear succession planning; and
- Alignment of interests of your management team, ie will they support a change of ownership and commit to the business going forward (indeed could there be a management buyout opportunity).
The market it operates in
- High barriers to entry;
- Demonstrable growth;
- Attractive market segment with few major risks including regulatory, legal and technical; and
- High levels of M&A activity including consolidation of the market (ie could your business be a platform acquisition to make further acquisitions).
Some of the above features are inherent to your business and cannot be changed but some can be fixed over time and, the extent to which you can influence the above factors, should ultimately drive your decision when to take your business to market.
At HMT we have been selling businesses in the Thames Valley for over 25 years both to UK and overseas buyers collaborating with an extensive international network of independent corporate finance specialists.
As the longest established corporate finance firm in the Thames Valley, we are always eager to meet local business owners and to understand their ambitions and explore their options and how we might be able to support them.
For more information about how we can work with you to increase the value of your business or help you sell it, contact Andrew Thomson.