There’s a lot to think about when it comes to selling your business. Being prepared can make all the difference – you don’t want to leave yourself in a position which results in the sales process taking up so much of your time that there is a detrimental impact on your business.
Being aware of things which could potentially cause an issue for a buyer early on is fundamental: we’ve seen time and time again problems that can arise and the delays which follow if you don’t think things through in advance.
One particular example was on a recent transaction we helped a client with. We have summarised some of the key challenges and points to note from our experience below:
- The owner in this case had stepped back from the business some time ago so the management team were key to getting the sale of the business across the line. The buyer was aware of this and needed the team to help drive the growth of the enlarged business post sale. The management team though only had a small minority shareholding between them.
- The buyer here wanted (as any buyer would) to ensure that the team were incentivised and motivated but was also cautious about the price to be paid for the business. The initial offer was 50% cash on completion with the remainder subject to a complex earn-out. The management team themselves would only cash in a very small sum at completion so they were not motivated to get the deal across the line.
- The buyer and the team attempted to negotiate a structure for the earn-out that would work for everyone in a tax-efficient way but this proved impossible. Discussions came to an abrupt halt and the deal fell away.
- With the deal off the table the owner, now aware of the problems caused by not sufficiently incentivising his team, implemented a new share scheme for the management team. The share capital was “re-based” so that the team could participate in a much greater proportion of any sales proceeds above a certain level. If any of the team left prior to a sale he could still buy their shares back for a low value so his own position was protected.
- A few months passed and the same buyer came knocking once more. With the new share scheme in place the management team were motivated to re-start negotiations alongside the owner. Since the last conversations the business had continued to grow and the financial projections that had originally been shown to the buyer were being surpassed month on month. The buyer saw this and made a revised offer – 100% cash on completion of the deal. A happy ending for everyone involved!
Some may say that the owner here was lucky in that the buyer came back with a great revised offer supported by the management accounts of what was a great and profitable business. For most there may only be one chance to get things right.
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