You’ve built up a sizeable business. It’s profitable and still growing, but you know there’s more to life than 65 hour weeks. You’re an “empty nester” and keen for more golf and extended vacations. You’re ready to sell. However, your financial advisor tells you that thanks to the exiting baby boomers, businesses are trading at lower multiples values than ever. You’ll need the proceeds from your business sale to fund your superannuation. Time to get out, but how do you maximise your sale value?
There may not be many participants in your industry who have the spare funds to invest in acquiring your company. The larger your company is, the less the number of participants. Many are already known to you, so there’s a likelihood that when you sell, your M&A advisor will be facilitating some kind of auction process. So what’s your action plan in the 18-24 months, before the auction process starts?
Firstly, identify these players
They may be direct competitors of yours now, or they could be interstate or overseas operators who know that buying the niche you’ve worked hard to carve out is cheaper or less risky than trying to do it themselves. But think beyond that. Which companies in related industries (or those companies in a different stage in the supply chain to your company) would also benefit from acquiring your company?
Now think about how your industry will change in the next two years and what these companies will need from your company. Perhaps it’s access to your client database, or your skilled and knowledgeable employees, or your IP, or your brand? So work on strengthening those assets. The more value an acquirer can see in such assets, the higher the price they’ll be willing to pay for your company.
Secondly, monitor and track industry developments
Competitive intelligence technology has progressed to the stage where you can set up news and company alerts on every mover in your industry. What announcements have they made? How has their website changed? What product innovations have been made in your industry and how are they impacting the market? What related industries are slowly aligning themselves with your industry? What substitute products and services are becoming available that could threaten your industry? There’s a wide range of electronic tools for sophisticated tracking. Some are free like Google Alerts, others like D&B 360 and IBISWorld are subscription based, but a sophisticated M&A company like LINK Corporate can utilise these tools on your behalf.
Thirdly, be flexible with the terms of the deal
When the time comes to sell, don’t be in a hurry to depart. Even if you’ve done your job correctly, and worked hard to restructure your company to lessen the dependency on you, a smart acquirer is buying on the basis of synergies – i.e. 1+1=3.
Their motivation behind the acquisition is that they can see opportunities to increase the profits of your company and the profits of their core operations. To achieve that they’ll need your expertise and experience in transitioning, in maintaining the loyalty of your key people and in ensuring that the strengths of the two sides of the merged operation flow through to the other. Consequently, you may not receive the full sale price on exchange of contract, and deferred payments may well be linked to future performance. Accept this reality and enjoy the challenge of being a pivotal person in the merged operation.
Good luck with the next few, inevitably bumpy years and remember the three key messages in a successful sale – plan ahead, monitor and track industry developments and prepared to be flexible with the deal and your eventual exit.