Company sale pitfalls: marketing your company for sale

August 2022

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Over the coming months I will be releasing a series of Guides dealing with some of the common pitfalls business owners can face when looking to sell their company.

One of the common pitfalls is failing to plan for an exit. My last Guide focussed on the benefits of having clear objectives and clear plans to get your company into a saleable state. In this Guide I set out a number of tips on how to go about selling your company.

One of the traps I have seen owner managers fall into is that of not putting in place a planned and managed process to market your company for sale, and therefore failing to find the best possible buyer and the best possible price. And if your buyer suspects you have few other options you will end up in a weak negotiating position.

Here are 6 or so tips on how to go about selling your business.

• Use good marketing and sales principles.

It’s a marketing and sales process.

• Understand what your business might be worth.

What’s your business worth? It’s worth whatever you can persuade someone to pay for it. Get a sensible valuation for your business. Most valuations are based on a net property and surplus cash value combined with an appropriate multiple of post-tax profits after factoring in the effect of the seller leaving. You should get this kind of valuation done, but don’t use it as the basis for any sales pitch. Most valuations are just designed to show a return on investment. But you are not looking for an investor – you are looking for a buyer. These figures alone won’t persuade anyone to want to buy, and certainly not at a premium to this basic method of valuation. Nobody buys a company’s history; they buy its future.

• Work on how to get a premium.

Identify what you have got that might persuade any buyer to want to buy your business and to pay a premium for it. Identify the intangible benefits your business might provide to a buyer, and try to sell based on them. Solid client base? Good long-term contracts? Strong growth potential with fresh investment? Good surplus cash generation or guaranteed income streams? Key employees? Strong brand name? Exploitable IPR? Geographical, operational or financial synergies for targeted buyers?

• Identify your potential market.

Who do you think might want to buy at a good price for you? Different types of potential buyer might have different reasons for being willing to pay a premium for your business. You can probably identify some yourself. Examples include:

• A competitor who might make big savings whilst also eliminating your company as a competitor.
• A supplier of complementary products or services which could benefit from cross-selling to both sets of customers.
• An overseas company looking to gain access to a new market.
• Management team? Not going to get you a premium, and you may well have to help them out with the deal structure. But can have other benefit

 

• Aim to create a market.

Try to get more than one strategically motivated potential buyer interested. The more a buyer wants to buy and the more interested buyers you have found and the less in a hurry you are to sell, the better your negotiating position in every respect.

If you find 4 or more and invite bids, on average you could find that the highest bid will be over twice as high as the lowest bid. It also helps when it comes to negotiating the terms of the deal with your chosen buyer, as they know you can probably walk away and find another buyer…

• Have a planned marketing and sales process.

Here are some tips:

• How are you going to find and approach potential buyers? Think laterally. Work on your network. You may get lucky. But to create a market (and to make life easier for yourself as they invest in data resources and researchers) it may well be worth engaging good specialist brokers or corporate finance consultants.
• Produce a ‘sales memorandum’ (or whatever you want to call it). More of a short teaser than a full prospectus. Enough to show potential benefits to a purchaser. At this stage you are trying to sell a conversation or meeting, not a company. Maybe 10-15 pages, showing products and service information, future potential, key benefits for a buyer, sales information, financial summary, shareholder information, reasons for sale, company history, and back-end stuff.
• Try to get conversations started. Approach prospective purchasers you have targeted. The more the better. If you use a broker this process might take six months – they might approach 200-300 prospective purchasers (phoning the MD) and slowly vet and whittle this down to five or so interested parties who they might ask to put in a bid.
• Remember – if you can create competition, and if you have some form of bid process, you don’t need to justify or negotiate a price!
• Vet your potential buyers to check they are financially up to it.
• Think about putting together a simple business plan for each chosen potential buyer (working with them) showing what the business might look like in a few years’ time under their ownership.
• Manage the bid process. Set up systems to try to stay in control of it.
• Get confidentiality agreements signed.
• Manage the due diligence process. Set up a data room and control and manage it carefully. This also makes life a lot easier when it comes to the warranty/disclosure process with your chosen buyer.

 

 

If you would like to discuss any of the issues raised in this Guide or any other issues relating to the possible sale of your business please email me at andrew.james@onhandcounsel to arrange a complimentary consultation to help you to identify what might be involved and how I can help.

 

About the author:

I have been a specialist corporate lawyer for 35 years. I have the ‘City quality’ experience and expertise to deal with any deal. But I also offer a level of personal service and value of money that you would struggle to get from most corporate law firms.

For more , see https://www.onhandcounsel.co.uk/benefits/value-for-money/

My business model and approach are therefore particularly suitable for most deals of any range from £250k to £10m.