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Six things to understand before selling to Private Equity
Selling a stake in your business to fund growth? Or perhaps your exit route is to sell outright to a Private Equity firm? Either way it pays to approach it in the right way.
There are multiple internal and external factors that can affect the level of consideration you will receive when selling your company. Learn about the top five things you need to think about when putting your business up for sale.
External and internal factors can massively impact the process of selling your company. You need t be sure that you are selling at the right time and in the right way. We have compiled a list of five crucial things to consider before making a sale:
Typically, when the local or global economic outlook is positive, a business owner can expect to receive a high consideration when selling their business. Potential purchasers are likely to feel more secure, and therefore more ready to invest and spend. However, given the prolonged period of uncertainty caused by both Brexit and the Coronavirus, businesses and investors have been more cautious. On the other hand, a significant number of both have been motivated to acquire quality assets in order to see a real, reliable rate of return, and both market challenges have provided this opportunity through the increase in assets up for sale.
Both Brexit and Covid also provided the opportunity for businesses to demonstrate that they can weather economic turmoil, showing their worth to potential future buyers. For some industries, this meant trimming the fat to remain profitable, but for others, it meant capitalising on the growth opportunities that presented themselves. For industries such as hospitality and travel, success was defined simply by still standing at the end! However, even in these, those with the ability to do so were making the most of businesses and assets being sold as a lower than usual rate, allowing them to emerge from this period stronger than ever.
Performing well in the adverse conditions strengthens a potential buyer’s interest, and a defensible business model is an attractive one. Therefore, if your business weathered Covid, it has something strong going for it – and thanks to Covid, others are looking to buy. Capitalising on this with competitive tension from an auction process can mean the potential consideration received is largely unchanged despite the background economic view. Managing this process and positioning a company to maximise on this is something PEM Corporate Finance have considerable experience in.
The process of selling a business can take between 6-18 months. Before this, as an owner, it is important to identify what can be done in the short-term to make this sale more profitable. It may take a few years for high, sustainable growth to occur, which is why structured planning is imperative. It may also take time to implement these changes: therefore, actioning these adjustments pre-emptively will maximise the consideration received from the sale. Considerations include having a strong second tier management; greater diversification; investment in high-growth divisions; and strategic cost-cutting. If you want to know more about the changes you could be using this time to put into place, contact PEMCF for a consultation.
Each business seller has a reason why they choose to exit the market, whether that be retirement, new opportunities, or passing the business on to the next generation, to name a few. Understanding why you are exiting will help shape your exit strategy and game plan. For most owners, their business is their biggest asset, so it is important to financially, physically, and even emotionally prepare for separation. Think about what you want to achieve from this sale – a continued legacy or a mere disposal for the highest price? This will not only impact your strategy, but also who you ultimately choose to sell to.
Due diligence forms a vital part of the sale procedure. This can be a difficult and tedious process if you do not have the right advisors and information in place. Typically, financial diligence covers the last three years, so if you are looking to sell within the next 3-5 years, your preparation should start now. Having robust financials will increase your buyer’s confidence in the transaction. Having quality management information also ensures that the process isn’t unnecessarily prolonged. Both you and the buyer want this process to be as expedient as possible, so make sure you’re ‘due diligence’ ready! Learn more about due diligence with our article here.
No two transactions are the same, but prior experience can still be a big help in managing and completing a transaction. Whilst most business owners will only sell a business once, there may be members of your team who have been through this process before. If they are a trusted member of senior management, their experience may help both in negotiations and overseeing the process. As well as utilising the experience of your team, however, it is wise to turn to professional, external expertise: after all, this process is sensitive, complex, and important to get right.
PEMCF has a wealth of transactional experience to ensure that your business is solid in the right way, left in good hands, and that your goals from the sale our achieved. We are here to work for you and your objectives in this process.
If you’re looking to sell your business, contact us on 01223 728222 or send on enquiry to our team. This can be a life-changing process, so it is important to get it right: at PEMCF, we are ready and happy to help.