Business sales

Selling your business?

Making the decision to sell your business is not only one of the most significant financial decisions you will ever make but an important decision which will involve a high level of stress and anxiety. It is therefore essential to get it right.

BDO Kendalls Corporate Finance can help sell your business and streamline the sales process so that you don’t get lost in a mountain of paperwork. Broadly the sale process involves:

• Grooming the business for sale
• Indicative valuation
• Going to market

Grooming the business for sale

The objective of this phase is not just cosmetic enhancement but real operational change if this is necessary.

Where practicable, time and size permitting, developing a sound first and second tier management team will greatly enhance the value of a private company. It helps demonstrate that you are not critical to the business and reduces the buyer’s investment risk.

On the financial side it is important to review the following:

• Accounting policies – these need to be compared to those normally adopted in the industry.
• Identifying non-recurring expenditure – highlighting these adjustments and focusing your potential buyer on the underlying earnings of the business is essential.
• Incurring significant capital expenditure – generally it is sensible to continue to invest in the business as if you were going to continue to own it in the future
• Forecasts – credible budgets and longer range forecasts can enhance value enormously. They should be underpinned by reasoned assumptions, perhaps by customer and product and be prepared on a bottom up basis with full involvement from the management team.

Indicative valuation

Ultimately a business is worth what the market is willing to pay for it. However, to assist a client in making the decision to sell, an indicative valuation is worthwhile.

An indicative valuation is performed using a wide variety of methodologies including the following:

• Discounted cash flow
• Capitalised maintainable earnings
• Asset based valuation
• Market based valuations

We are well versed in a variety of valuation techniques. Each transaction is different in its own right and the valuer must select the technique that is most appropriate in the circumstance. It may well be the case that a number of techniques are selected and an analytical comparison made. We will also research recent transactions to obtain a comparable sale multiples.

Going to market

The key to a successful process is maintaining confidentiality, controlling the information flow to buyers and dictating the timetable. In our experience a focused, competitive process drives value. We will manage all aspects of the sale process and allow you to focus on running the business. Trading performance is critical during the process as potential buyers will use a downturn in trading to renegotiate the process whereas robust trading will give buyers confidence.

Key stages in the process

• Research into potential acquirers
  Identifying potential acquirers is a critical part of the process. You will have specific views on who you want to approach and those you do not want to include in the process. The BDO Kendalls Corporate Finance team can source potential acquirers through our international reach, firm wide deals, and utilise databases such as Bloomberg, OneSource and Dunn & Bradstreet. We will identify buyers based on the criteria discussed with you.
  
  
• Information memorandum
  The information memorandum is the principal selling document and it must have immediate impact and present your business enthusiastically and in a clear and accurate manner. The document should provide potential buyers with enough information to make a reasonable assessment of your business and crucially to formulate the price they would be willing to pay for the business.
  
  
• Approaches
  Once a list of potential acquirers has been agreed with you we will make approaches on a no-name basis. Disclosure at this stage will be restricted to the business sector, outline turnover and profitability and the key selling points of the business. This information is generally displayed in the form of a teaser brochure. All potential acquirers will sign a confidentiality agreement before receiving the information memorandum.
  
  
• Management presentations
  Management presentations give us the opportunity to meet potential acquirers face to face and to give the acquirer our view of the key value drivers of the business and to update them on current trading. The meeting will also give us more detail on how potential acquirers intend to approach the transaction and to discuss more commercially sensitive issues.
  
  
• Indicative offers
  The first round offers will be based on the information memorandum. We will provide guidance in terms of the deal you are looking for and the preferred deal structure. Once indicative offers have been received on the business we will agree a short list of preferred bidders who will be given the opportunity to meet management.
  
  
• Revised final offer
  We will lead negotiations with short listed buyers and manage the relationship with them through to final offers. We will be leveraging the competitive tension created in the process and also using our negotiating skills to drive the price. Our focus is always on positioning the business in the best light, building competitive tension and forcing buyers through a controlled process. Once we have fully negotiated the final offers we will choose one party to proceed with and they will be granted exclusivity for an agreed period upon signing the heads of agreement.
  
  
• Exclusivity and contracts
  Once heads of agreement have been signed and an exclusivity period granted the purchaser will instruct its accountants and lawyers to undertake an in-depth investigation of your business. This is financial and legal due diligence.
  
  
• Vendor due diligence
  Once the acquirer has been determined BDO Kendalls Corporate Finance will coordinate the due diligence process which will include management/vendor meetings and access to a physical and/or electronic dataroom. This area includes both financial and legal due diligence with the results often used by the purchasers to attempt to renegotiate the price. Due diligence may be widened to cover such areas as property, environmental, IT and HR issues depending on the complexity of the business.
  
  Lawyers on both sides will then draft and negotiate the formal legal documents to effect the transaction, primarily the Sale and Purchase Agreement but also any financing documentation required and service contracts for the directors, if applicable.

The team at BDO Kendalls will co-ordinate the whole process during the period as there are often a large number of parties and other advisers involved and you will have to cope with the demanding provision of information for the due diligence process.

The business sales service offered by BDO Kendalls utilises internet based resources to automate the process for clients. Our ability to conduct business sales online allows us to effectively and efficiently manage local, national and international acquisitions.

Why choose BDO Kendalls?

BDO Kendalls has a significant amount of experience in managing a sales process with a proven track record of obtaining excellent sale multiples for transactions. Closing the transaction is a result of working with the client to tailor a sales process to their requirements. For further information about business sales please contact your local BDO Kendalls Corporate Finance adviser.