To sell or not to sell? - that IS the question!
Deciding when, how and where to sell a business is a turning point in any owner's life. Most will only do it once, so it's important to get it right. Selling a family business accentuates all of those issues and can make for an emotional time, particularly if there are several branches of the family and different generations involved.
A decision to sell can be triggered by many things and an irresistible approach may be the critical factor. But it is often the lack of suitable (or any) succession which brings matters to a head and forces families to address the taboo subject.
Family businesses which have passed through the generations are rarely run with the express intention of maximising value prior to heading for the exit. But, when the time comes to consider selling, it would be madness not to achieve the best possible outcome for all parts of the family.
So what are the main things to think about when weighing up the prospect of bringing family ownership to an end? It may seem obvious, but the most important piece of advice is to prepare properly - and that doesn't just mean getting the financials into shape.
The first requirement is to get all the family shareholders pointing in the same direction with common goals and aspirations. There is nothing worse than embarking upon a sale process only to find that the vendors cannot agree amongst themselves what they want to achieve. It's better not to start at all than to break up in disarray. Of course setting off in one agreed direction is not the same thing as arriving there and there can be many twists and turns.
The second imperative is to plan for the exit in good time and to ensure that the business profile ticks as many of the right boxes as possible: a good business plan; strong sales and earnings growth; positive cash flow; attractive trading outlook; well-invested assets; a recognised and reputable brand; a capable management team; and so on. A progressive three year historic track record, leading on to a next year forecast pointing in the same direction, is always a good start. So it's not generally a great idea to look for a sale on the back of the familiar 'hockey stick' of decline followed by anticipated stellar recovery.
A third element to get clear at the outset is to establish what a successful outcome looks like. Is it a straight sale for the whole share capital? Is it only for cash with 100% payable up-front on completion? Is deferred consideration or an earn-out (dependent on future performance) an absolute non-starter? Will the shareholders' tax positions dictate the required result? And, most importantly, what valuation will meet the shareholders' expectations?
It goes without saying that any deal is a combination of what the vendors will sell for and what the purchasers will pay. That is always a matter for negotiation, but it helps to know where the shareholders' ambitions lie and whether they are realistic for the sector, the size of business, the financial performance of the operation, the current economic climate, the pool of potential buyers, the availability of finance etc.
The other essential feature at this preparatory stage (and I would say this) is to get the best quality advice from someone who understands the process of selling a business and will give guidance in an objective and dispassionate way. If it's not the right time to sell the business, it's important to have an adviser who will say so and not just be looking to earn a fee regardless.
Is it necessary to have an adviser with knowledge of the relevant industry? It's not vital, but it certainly helps because the adviser can then identify potential buyers who are actively looking for acquisitions and are likely to have the financial wherewithal to come up with an acceptable offer.
The actual sale process is worthy of a separate article for another day. But if you have these particular 'ducks in a row' you are off to a flying start.
Posted on: 16/03/2016
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.
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