By Kevin Uphill, Managing Director at Avondale
M&A is back with a vengance
UK economic data is showing the economy is finally recovering with GDP increasing by 0.8% in 2013 Q3 after 0.4 and 0.7 in the respective previous quarters. This suggests for the first time in five years growth will go over 2%, enabling the Treasury to secure much needed tax revenues. Despite this, it is still much slower growth than we have historically enjoyed and we remain with a debt hangover with both the Banks and the Government. It therefore seems likely that we are into a period of slow growth. This is great news for signalling business sales, mergers and acquisition activity.
So why is it good news for M&A? Firstly organic growth is slow, meaning stakeholders have to find new methods to accelerate/create shareholder value. Acquisitions bringing economies of scale and synergy provide this option. Secondly, in slow growth economies there tends to be pressure on margins which forces sectors to seek consolidation. Finally growth is growth and that means less cash-flow volatility so finally banks can start to lend responsibly.
Is the right time for you?
If you are considering an exit, the economy is working in your favour.
However, there are many other aspects that are crucial to a successful business sale. Careful planning, good timing and an effective approach are essential.
Growing a company to sell for prosperity is one of the most guaranteed ways to wealth, yet, just like roulette, the odds are stacked against you.
Unlike roulette, business owners are able influence the odds. Knowing when to stick or fold is a key part of business strategy and the timing of an exit is critical. Ideally sell before you peak, before the next wave of investment, with a great track record and when the market has prospects for your sector and you have a team able to drive growth beyond you.
It is also important to analyse the forecast net sales proceeds versus the net income you receive, versus the time wealth achieved from a sale. In terms of income, is it the right time for you?
When it comes to selling a business it is critical that you examine the facts. Factors such as time, wealth and personal drivers need to be seriously considered.
Increasing your business value
Prior to sale, owners should be looking at strategic ways to increase the value, not only through the level of profits, but also through addressing elements that will directly impact the value. Owners should be looking to spend more time working “on” the business rather than “in” the business, increasing profits and making it more attractive to buyers. There are a few fundamental factors that can influence value; including:
• Minimising the buyers/lenders perception of risk.
• Ensuring steady, recurring income that can easily and accurately be forecast where possible.
• Ensuring solid systems and safeguards are in place.
• Develop strategic long-term growth plans.
• Consider geographical and sector diversification.
Select an select an advisory team
Undertaking a business sale is one of the most important financial decisions you will ever make and an advisory team take can make a real difference in maximising value and minimising distraction. There are many legal, financial and regulatory issues to address. In addition, there is the matter of finding the most profitable buyer for your business and then negotiating and structuring the most advantageous deal, ideally in a competitive environment.
Leveraging the sales process
There are many ways in which you can strategically increase your business value. Correctly used, the sales process itself can significantly increase your deal value. A professional advisor can guide you through the process and manage it enabling you to concentrate on your business.
To help leverage the sales process you should aim to:
• Create a competitive environment: Careful research to identify and approach potential buyers that would benefit from acquiring your business will lead to multiple parties having a vested interest in buying. This in turn creates a competitive market driving your deal value.
• Position your business in the best light: Ensure that potential synergies, long term strategies and forecasts are carefully detailed.
• Negotiate and structure the right deal: An advisor can coach you on your role in negotiations and will lead these to ensure the right deal is structured. A good advisor will be able to leverage buyer’s motivation, create strong walk away positions to ensure your objectives are achieved.
• Manage and orchestrate all parties: Again, an advisor can manage this on your behalf ensuring all parties are fully informed, deadlines are met and that the transaction stays firmly on track until completion.
There are many aspects involved in a successful business transaction. Some of which will start prior to the sales process itself. It is important that you start considering these months before you decide to sell. Understanding the preparation and process will help ensure a successful transaction at maximum value and minimal stress.