In shareholder-managed businesses, the typical exit route to enable the owner-managers to retire or move on to something new is to sell their shares.
Preparing for this eventuality is critical to ensure you and your business are “transaction-ready”. However far into the future, a disposal transaction may be contemplated.
What do I need to do to be transaction-ready?
It is essential that you work towards making your business as attractive as possible to a potential acquirer.
Important considerations include:
- Recruit and fully integrate an experienced and high-quality senior leadership team;
- Maximise the maintainable profitability of the business, deliver growth and ideally project future growth at the planned timing of an exit;
- Maintain a detailed strategic business plan;
- Prepare detailed historic and projected financial information for presentation to potential acquirers in anticipation of a future due diligence review process;
- Ensure that the corporate and operational structure is suitable for your business and aligned with the medium to long-term strategy;
- Resolve any ongoing disputes or unresolved key commercial matters such as registering trade-marks and other IP, or finalising new property leases;
- Engaging with the right corporate finance, tax and legal advisors to help position your business appropriately for a disposal process.
When should I sell my business?
The timing of an exit can significantly impact your value realisation.
Selling at a point when business performance and the wider market are strong, as well as the short to medium-term outlook, will all make your business more attractive to a potential acquirer.
What exit route is available to business owners?
Understanding what you want from an exit is key to enabling you to understand the most appropriate exit route and type of buyer and plan for this appropriately.
Each exit route is different with key considerations.
Sale to Private Equity
This will likely involve remaining in the business for a secondary exit therefore is a suitable route for those looking more medium-term and is an opportunity to realise some capital value today and further capital value on the secondary exit.
Building a management team around you for your primary exit is key, followed by enabling them to run the business over the medium term so that you can fully step back at the secondary exit point.
Private Equity will also require your business to be on a significant growth trajectory therefore your business plan and deliverability of your financial forecasts will be crucial.
Sale to Trade
A sale to a trade buyer typically allows for a more immediate full exit, after a short handover period. Planning for this type of exit can be more challenging as it depends on a trade acquirer’s strategic reasoning for making the acquisition, as well as your business’s financial performance.
If the trade acquirer is of sufficient size and scale to manage your business operationally then an exit at any point would work for both parties.
In the scenario that a trade acquirer needs an operational management team in place, then it is important that you build a management team around you to take over when you exit at the point of sale.
Sale to an Employee Ownership Trust (“EOT”)
This type of exit is typically more suitable for service businesses with relatively flat management/employee structures where employees contribute in broadly equal proportions.
This type of disposal typically results in a sum being paid on completion followed by further consideration being paid out of future trading cash flows.
Again, this type of sale will require a management team in place at the point of exit to run the business going forward, as well as consideration of additional Executive reward structures to incentivise/reward the senior leadership team above what they would get as Employee shareholders.
Management Buy-In (“MBI”) / Management Buy-Out (“MBO”)
This is when an external management team or existing internal management team (or combination of both) acquire the business from the shareholders.
Bank debt is typically raised to support the MBO/MBI enabling a significant proportion of the consideration to be paid at completion.
This usually provides quite a “clean” exit for the selling shareholders as a ready-made management team takes over the running of the business, enabling your full exit at the point of sale.
Why is it important to engage the right Corporate Finance advisor?
Corporate disposals are time-consuming, emotive and complex processes.
Selling your business is typically a “once in a lifetime” event therefore working with a high-quality, trusted advisor with a proven track record of delivering successful outcomes, to provide constructive support and challenge to maximise your value and deliver the transaction is a hugely important decision.
If you are considering selling your business or need advice on an acquisition, please get in contact with our specialist advisors below:
