Exiting a Business: Critical Steps to Achieving the Best Price on Sale
This year, Cavendish Corporate Finance is celebrating its 30th year anniversary. Below, the firm’s co-founder and senior partner Lord Leigh of Hurley has distilled some of his key learnings from three decades of advising entrepreneurs on successfully exiting a business to secure the best price on sale.
Put a plan in place
The starting point for successfully selling a business is to have a comprehensive exit plan in place from the outset. This reduces the time spent on the sale, helps avoid wasting time on unsuitable potential buyers and means you are also in position to opportunistically take advantage of any sale opportunities that may arise.
Any plan should cover all the key elements of the sale process, identifying the most likely type of buyer, either trade or financial, positioning the business to secure the best price on sale, demonstrating that there is a strong management team and that the company has further opportunities for strong growth.
Without such a plan, negotiations can stall and you might not achieve the valuation you targeted. Being flexible too helps, so you can respond to unexpected, favourable approaches.
Identify your ideal buyer early
Clearly having in mind the type of buyer you are seeking from the outset is a fundamental factor in a successful sales process. This will allow you to position your business in a way that attracts those you perceive will offer the highest price and the best home for your business.
Essentially there are two types of buyer: trade or financial, largely private equity houses. Each type has very different approaches and priorities.
Trade buyers are seeking to acquire businesses that they can easily integrate into their operations, while financial buyers are looking for companies with strong growth potential, but also a great team and competitive advantages that will help the buyer quickly scale the business.
The greater the insight you have into a buyer’s motive for purchasing your business, the easier it will be to successfully position your company to make it as attractive as possible for that buyer, thus maximising the value of your business.
Timing is critical
Timing is key to achieving the best price on a sale and is a significant factor in the perceived value of a business. Monitor the overall performance of the sector in which your business operates and as when it is doing well it can give a significant uplift to your company’s valuation.
If there is a flurry of transactions and acquisitions in your sector, research the buyers in case they are on a sustained deal drive and make sure you are prepared for sale so you can take advantage of such trends.
Use your USP
Making sure you understand and articulate your businesses’ USP is vital. Potential buyers will likely be scanning the market, including your competitors, so you need to make sure they are clear on what your unique proposition or positioning is in your sector. This may revolve around patented IP, market-leading software or a strong defensible market position that gives you an advantage over your peers and rivals.
Prepare for rigorous due diligence
The goal of a due diligence during the sale process is to allow the buyer to confirm the seller’s finances, contracts, customers and all other information that could affect the profitability or value of the company. Failing to prepare for a stringent due diligence process can delay an entire M&A process and even cause discussions to end. In particular, with knowledge-intensive industries, ensuring that any key IP is protected and patented is crucial for a sale to go ahead.
Maintain business momentum
A sales process can be lengthy, particularly for larger deals, and so maintaining your businesses’ performance is key to concluding a successful sale.
Often growth business do not have the depth of management to cope with both continuing to grow the business as well as manage all aspects of the sales process and be responsive to buyer queries.
So it is important to consider bolstering the key finance and legal functions, potentially with a full-time FD if there is not one in place and further staff to help respond to both commercial and legal queries and ensure all the information they require is swiftly provided.
Showcase the business’s growth potential
Likely buyers clearly will be looking to see if your business has a track record of growth and success. But equally they will be assessing the business to see if it has further strong growth potential, whether that is for launching new products or services or expanding to new markets.
Being able to put forward a compelling growth strategy, which not only has rigour and hard evidence to back up projections and forecasts, but also demonstrates that the business has the cash flow or access to external funding to implement the strategy, is key to convincing buyers that the firm is an attractive proposition.
Know when to walk away
It’s always important to remember that you do not have to conclude a deal if you are not comfortable with the negotiations and price being offered. Just because you have entered sale process does not mean you have to sell your business whatever the terms. However, if you appoint the right corporate finance adviser, which has the experience both in your sector and in advising on sale, then the risk of this will be significantly mitigated.
About the author:
This year marks the 30th anniversary of Cavendish Corporate Finance, one of the UK’s leading mid-market M&A advisory firms. Since its founding by Howard Leigh, recently ennobled as Lord Leigh of Hurley, the firm has advised on some 600 company sales, including some of the UK’s most iconic brands.
He was elevated to the Peerage as Lord Leigh of Hurley in 2013 and speaks regularly in the House of Lords on business, finance and tax matters. He accompanied the Prime Minister on the trade trip to China in 2013. Howard chairs a number of charitable concerns and was appointed as a Treasurer of the Conservative Party in 2000, and subsequently as Senior Treasurer.
- 11th August 2022