Are You Sale Ready?

If you’re at the stage of considering the ‘What Next?’ for your business then it is probably time to consider whether your business is ready to go through a partial or complete sale process. Although this is a ‘well-trodden path,’ time spent  preparing for the Herculean tasks to be overcome by you and your management team in completing the sale process is rarely wasted.

In this article we would like to provide you with some prompts and insights from the sale processes we have conducted in the past:

• What do the other shareholders want to do and can you reconcile their different opinions.
• How will the team react, do you need to think of retention plans, staff participation in the sale.
• How is the business trading, are there restrictive covenants in place, vanity projects and the ‘old chestnut’ housekeeping.
• How will business partners react; customers, suppliers and finance partners.
• How up to date are your succession plans.

The lists and sub- lists expand from the prompts above and rapidly overload the ‘to do’ lists of the current executives especially if time constraints are placed on the process. Selling your business is a distraction from running your business and the proper amount of temporary support needs to be factored into the process to prevent burn out. A well-prepared exit plan will have a target of circa 18 to 24 months and in the intervening period it is essential that budgets are achieved, and targets met to give credibility to the forecasts in the Information Memorandum.

Other shareholders influence your decision in a variety of ways, the obvious being the institutional shareholder who will drive the sale agenda in accordance with the demands of their equity fund despite the warm words of non-involvement expressed at the time of their investment. In these circumstances knowing the shareholders’ agreement and understanding all of its legal commitments are essential for you to keep control of the timeframe. However, non – institutional shareholders can come up with a few surprises of their own such as an immediate need to ‘cash in’ or a reluctance to be involved in a Private Equity ‘rollover’ of sale proceeds preferring the lower offer from the corporate buyer with less strings attached.

You may have mixed emotions about selling but your team will certainly be unsettled by the idea of an uncertain future. Managing that balance of ‘business as usual’ and preparing for sale becomes more complex as more people are drawn into the vortex of providing information. Clear guidance through the process and knowing how to motivate and retain the key players within your team is an essential part of the exit plan.

Do you know where the market will attribute value to your business, what will be seen as non-core, or whether today’s overhead includes costs for profit streams that are too far in the future for a sale planned two years hence. Probably the answers to all these issues are known by you but the mindset to exit the business is not the same as the one that created the business you enjoy today.

Change of control clauses in customer and supplier agreements rarely prevent a sale from happening but will be required to be listed by a purchaser. Finance partners, however, will need more attention as repayments of loans will form part of the sale agreement and there will be notification requirements within any loan documentation.

Commenced at an early enough stage known gaps in your succession plans can be filled or mitigated prior to the purchaser’s due diligence. If you decide to ‘stay involved’ gaps in the succession plan will affect you personally as you shoulder more of the executive responsibilities and you may end up feeling like just another employee in the business you once owned.

If any of the issues raised in this article are of particular interest to you then join us at our ‘Talk & Golf : Thinking of Exiting your Business?’ and put your question/s to the panel or alternatively contact one of our team for a one to one discussion on your particular circumstances.

This article is co-authored by Clarkslegal and Diamond Clarity Consultants.  

Clarkslegal’s Corporate/M&A team specialise in advising owner-managers on exiting their business.

Diamond Clarity Consultants work alongside management teams to help deliver their strategy and business goals