Ritson Smith hot topic: finding a buyer for your business

 
As leading advisers to the owner-managed business sector in the North and North East of Scotland, Ritson Smith’s focus is on working with entrepreneurs to maximise the value within their businesses.

As the most popular exit route remains a trade sale, Ritson Smith’s Corporate Finance team,
headed by Graham Alexander, has put together this compiled this quick guide to help entrepreneurs ensure they maximise the value of their businesses before a sale and enhance the consideration they receive.

Timing

When selling a business, timing is a key factor.  Purchasers often look for growth potential, so it will be better to sell a business on the way up, rather than one that has already peaked.  The same principle applies to market timing: the relevant sector has to be thriving and growing.  Finally the time of the year has to be taken into consideration if the business for sale is seasonal; the most attractive time for the sale needs to be identified.

Pre-sale planning

The key to maximising the return from a sale is understanding where the value in the business lies and to enhance it before the sale to make the business more attractive to potential purchasers.  It is equally important to identify any areas or assets that could be seen as redundant or less profitable and which would therefore not appeal to buyers.

Any potential problems, which could delay the sale or reduce the consideration should be addressed presale.  A plan to reduce risks should be in place, as well as a long-term sustainable plan to increase profits.  Due diligence should be carried out to identify any problems; legal hurdles should be recognised and tackled in advance.

Marketing

The key marketing document for a business, designed to generate interest, is the Information Memorandum.  This is the first document that a potential purchaser will see, therefore it is vital that it presents the business in the best possible light, highlighting key attributes and assets whilst being factually correct and objective.

Corporate Finance professionals like Ritson Smith play a key role in the preparation and development of this type of document, as they have extensive experience of working on sales mandates for a wide range of companies.

Finding a buyer

The advisers will also be able to develop a buyers’ list to whom the Information Memorandum will be distributed.  Different buyers will be interested in different companies or assets, as they all want to buy for different reasons:

• Trade Competitor: already knows the business and is in the market but wants to increase market share.
• Customer: wants to expand its business and reduce costs by owning the supply company.
• Supplier: wants to control distribution or wants to oust other suppliers.
• Financial buyer or conglomerate: looks for return on investment.

Negotiation

All negotiations are different, and they often depend on how determined the buyer is to complete the deal.  When a buyer is keen on the deal the vendor is in a position of real strength; when several potential purchasers have to compete for the business, the price will be driven upwards.

Vendors need to be clear in their approach to negotiations, sticking to the agreed strategy that will deliver the maximum price.  Agreements should not be overly complicated and contain too many conditions as they will become difficult and expensive to implement.

Tax considerations, earn-outs and deferred considerations should also be considered carefully and discussed with advisers.

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