Matt Newing is the founder of Elite Group and an angel investor in the digital, IT and telecoms sector. After completing 17 acquisitions for Elite and spending countless hours over the past two decades helping business leaders achieve successful earn outs, here are his top five tips on what to consider when preparing to sell your business:
Selling your business can prove a big challenge for entrepreneurs. It certainly isn’t easy and, in my experience, less than 50% of acquisitions are successful at paying earn-outs in full. So, how do you prepare your business for a successful sale?
1. Do your own due diligence
Expect any buyer to go through a thorough due diligence process to assess your business. You can make this process run smoothly by doing your own due diligence first.
For example, make sure you have copies of customer contracts, know how much of your margin is in long-term contracts, ensure you’re following standard accounting policies for revenue recognition and that all employees have robust contracts of employment.
Doing this yourself first will flush out gaps that would have lowered your value, which you can then correct before going to market. This will also give a potential purchaser confidence that you have a well-managed business and less scope for them to chip price during due diligence.
2. Have clear and realistic objectives
Be realistic on your personal objectives and, therefore, deal structure. What’s the minimum value you’d accept for your business? What role and control do you want post-exit and what do your fellow shareholders want? Do you want to leave a legacy and look after your staff, even if that doesn’t give the highest exit value?
These are tough decisions to make, so knowing your options and thinking them through beforehand is critical to ensuring you make the right choices in negotiations.
3. Dress your business for sale
Identify what is great about your organisation and pitch those points to potential buyers. For example, are you outperforming the market in any areas? Do you have any IPR that could be scaled?
Don’t underestimate what a difference presenting your best attributes as a business can make to the sale price.
4. Create competitive tension
You may have a potential purchaser in mind or have been approached by an interested party, but my advice is not to sell to the ‘first’ bidder but create some competition.
By engaging experienced corporate advisors, you can attract competing buyers that will ensure the best value is achieved for you. But also present a range of different options, offering choices such as how long to stay in, plans for your most loyal staff, upside earn-out versus maximum upfront.
Some buyers will see your business as a synergy play, looking to take as much cost out as possible, while others will see you as a complementary play, bringing products and skills that they don’t currently have and hence looking to invest and grow your business. Know which option you’d prefer or whether you just want to sell to the highest bidder.
5. Hire a solid legal team
A successful post-acquisition earn-out is always based on a well written and negotiated sale and purchase agreement (SPA), as this is the key document that sets and agrees expectations, governance and balance of risk. Making sure you hire the right legal firm is, therefore, critical to a successful sale as they will prepare this for you. Ensure they have a good track record and understand your field of business, and preferably obtain recommendations before embarking on any relationship.
Following these five actions upfront should stand you in good stead for achieving a successful sale and earn out. The process may seem daunting, but with so much to gain, taking the time – and investing in the right support – is worth your time and money.
Matt Newing can be contacted at: Mnewing@EliteCommsGroup.com
Kizzi Nkwocha is the editor of Business Game Changer Magazine and publisher of The UK Newspaper, Money and Finance Magazine, the net’s fastest growing wealth creation publication. Kizzi Nkwocha is chair of The Ethical Publishers Association and co-chair of The Logistics Association. Kizzi made his mark in the UK as a publicist, journalist and social media pioneer. As a widely respected and successful media consultant he has represented a diverse range of clients including the King of Uganda, and Amnesty International. Nkwocha has also become a well-known personality on both radio and television. He has been the focus of a Channel 4 documentary on publicity and has hosted his own talk show, London Line, on Sky TV. He has also produced and presented both radio and TV shows in Cyprus and Spain.