The end of the financial year is typically a time to contemplate the future, so if you are thinking of selling your business in FY20, here are 12 lessons from transactions we led in FY19.
Here are 12 M&A lessons from FY19.
Too many owners are unable to sell down to staff because their staff can’t afford it. So, a trade sale to a third party is the only practical exit. Here are twelve questions to help you reflect on your options and actions:
Why do you want to sell?
The answer is critical; you have to be honest with yourself and the buyer. Do you just want to cash in? There is nothing wrong with that, but if you do, have you made yourself indispensable? Have you achieved operational succession?
What is your price expectation?
Have you tested this honestly against the market? Don’t just ask your accountant or lawyer buddies. Do you have informed and objective research? Do you understand why deals are priced the way they are, including the way terms of payment can be structured?
Are you prepared to stay in the business for a minimum period?
If not, think again or expect a lower price. During that time are you prepared to work for someone else who may not be as smart as you? If you get an exceptional price you probably won’t care.
What will you do when you leave the business?
Have a clear view, even if you keep it to yourself. Many leave after the minimum period, but others grasp the new opportunity and stay. Be clear about what sort of buyer you want, for both your future choices and those of your people.
Is your next tier of management credible to a buyer?
The buyer will want to see inter-generational leadership in place; they won’t want to supply their own leadership for your business. Have you invested sufficiently in this aspect of your succession?
Where is the firm in its business cycle?
How far out can you see? Could trading start to cool in a couple of years? If so, don’t wait. Too many owners leave it too late to exit. Sell on the up, not at the top. If you can see the top you are on the way down.
Will you have to normalise the accounts to prove your value?
If so, expect a negotiation you probably won’t win. Your accounts need to be as clean as possible, are they?
Be clear about what you want from an acquirer, it shouldn’t be just about the money.
Consider fit, culture, trustworthiness, reputation and quality. Think about the players in the market that have these qualities. One more thing, don’t chase a potential buyer until you are convinced they have the money and are prepared to spend it.
Have you been approached already?
Don’t waste time with tyre kickers. Unless the acquirer can demonstrate they know the process and have done it before it could cost you dearly, in time and value. Don’t expect overseas buyers to readily cross continents to meet you, these transactions can’t easily be done remotely; in the first instance look closer to home for a buyer.
Do you realise the sale process could take at least six months and could occupy a great deal of your time?
What will be the impact on the firm if you take your foot off the gas? Don’t try and do this yourself, for every dollar reduction in profit read a multiplied reduction in the sale price for which you are looking.
What about private equity?
It can work if structured well, but also it may increase the pressure and stress. Private equity invests to exit after around three years and seek to at least double their money in that time. It is the start of a new journey for an owner, not the end of one.
Do you have a compelling and infectious vision?
Whether it is a strategic acquirer or a financial investor, they need to be excited by the potential of your business. Can you demonstrate that you understand your market, be it clients and competition, where it is heading, your competitive advantage and how your business will grow over the next three years?
Any questions? Feel free to contact me by email at [email protected]. In the past year, Eaton Square has advised on more than one transaction a month and we see the market getting more intense as succession issues bite (supply side) and larger firms seek to strengthen their offerings and competitive positioning (demand side).