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Looking to sell your business? This presentation maybe just what you're looking for!I'm a stakeholder... get me out of here!This is the full presentation, which took place on 01.03.11 and Eastwood Park Training & Conference Centre, Falfield, Wotton-Under-Edge (South Gloucestershire).Speakers included:- Chris Brill- Will Abbott- Peter Mardon- Stewart Barnes
Citation preview
I’m a stakeholder… get me out of here!
1st March 2011
2
Agenda
Talk about my experience of building and selling a Company
The factors that I found important
Answer any questions
3
In the beginning
Start up
Survival
Growth– New challenges
– Excitement
– Success
– Rewards
Sale?
4
What Changes?
Professional
Personal
Market opportunity
Mixture of above
5
My Own Experience
AudioSoft
– I founded in 1995
– Grew very rapidly
– Won D&T award for fastest growing Co in SW in 2000
– Over expanded
– Back on growth at 20% per annum
– Co always profitable
Sold to Ultra Electronics in August 2008
– Met objectives of sale
– Still with the Company
– I have a boss!
6
The thought stage
Reasons for sale?
– Approach
– Co’s growth starting to slow
– Reached the point of inflexion
– Consolidation
– Didn’t want to be working my backside off with a smaller business
Summer holiday 2004
– 5 point plan
– Covered items like customers, IP, dependency on me, future revenue streams etc
– Big question – Did I really want to sell?
7
The chew on it stage
If I did sell what do I want to do?– Lie on a beach dreaming of selling business?
– New startup?
– Personal lifestyle issues
How would it effect employees?– Loyalty
– Future
The deep hard question - Do I really want to sell?
8
Research Stage
My own research
– Various valuations etc
– Other Companies in similar industries
How would I sell the Co?
– Seminar
– What effect on my time – I am running the business!
9
Action Stage
Worked with Randall & Payne
– Full audit
– Advice
– Knowledge and experience from a trusted source
Appointed a Company which specialises in selling Companies
– Not accountants
– Not solicitors
– Not a friend of a friend
– Sell your Company like you sell your product
10
Action Stage
Appointed BCMS summer holiday 2007!
Their process
– 6 months
– Generation of Information Memorandum
– 250+ prospective Co’s
– Letters sent out
– Meetings
– Offers
– Create a market
11
Accountants and Lawyers!
Right fit with the business
– D&T?
Why Randall and Payne
– They know our business.
– Size & resource
– Relationship – dealing with a Partner
– Response – Sat, Sun afternoon, on holiday.
Why is this important?
– It’s a new experience
– Still running the business – hence likely to be outside normal office hours
12
Legal Advice
Two options;
– BCMS recommendation
– Accountant recommendation
Why Winterbotham Smith Penley (WSP solicitors)?
– Size
– Dealing with a Partner
– Importance to them
– Close relationship with Randall & Payne
– Personal previous experience
13
The right team – why it is important
Still running the business
– How many hours are there in the day?
New experience for the vendor
– Acquirer may be doing this all the time
One thing I can guarantee
– There will be problems – Heads of Agreement meeting
Reassurance for the buyer
– Post acquisition comments
– Our acquirers were very complementary about the team
14
Summary
Plan to make the Co fit for sale – timing is vital
Sale process – remember you must still run the business
Professional advisors – engage early and get a team that is right for you.
Valuation – be realistic. There will always be an expectation gap.
Keep something on the table for the acquiring Co
Selling the Business
Will Abbott LLB FCA
Partner
Randall & Payne LLP
Introduction
• Valuations
• Tax
• Strategies
Valuations
• Multiple of future sustainable earnings
• Asset valuation
• Discounted future cashflow (minority)
• Specialist valuations: turnover multiples
Valuations
• Multiple of future sustainable earnings
• Maximise the multiple (10+?)
• Always lower than plc
Valuations
• Start with historic profit
• Adjust for unusual items– Director remuneration– One off contract
• Use weighted average
Valuations
• Usually apply 5-8 times – 9/10 accountants will do this
• Often for tax purposes
Valuations
• PCPI average 11.2 times historic profit
• Mean deal size £20m
• Median deal size £6m
Valuations
• UK200 SME index P/E 6.8
• Mean deal size £2.65m
Valuations
• Debt free / cash free basis or Normalised working capital
• Build up of cash in the balance sheet
• Valuation plus the cash
The New Tax Regime• Entrepreneurs’ Relief
– Lifetime allowance £5m gains at 10% (x2?)– Individual allowance – Must be claimed– Business or part of owned for 12 months– Not business property or assets used unless
– Sold within 3 years of associated disposal &– No rent paid
Company Shares• Trading company
• 5% of the shares & 5% of voting rights
• Officer or employee– Officer = director or secretary
• No substantial non trading activities
Property• ER if owned by Co & shares sold
• But buyer may not want the property
• Use of SIPP or SSAS
• EFRBS
Tax Summary
• Much more restrictive regime
• Loss of indexation on property assets
• No reward for long term ownership
• Less reward for serial entrepreneurs
• But CGT better than 40%/50% IT
• Debt free/cash free disposals
Strategies
• Identify what are you selling– Customer list– Product/service– Personnel skills– Knowledge/know how– Geographic presence
Strategies
• Find a strategic buyer– Plc or private equity group - P/e ratios 15+, – buying 5-8 times = immediate S/H value– Goodwill write off may be an issue– Goodwill = price less net asset value
Strategies
• Set up an auction– Need 2 and more interested parties– Use a selling agent
• Many Accountants do not have the resources
– Avoid value buyers and investors – low multiples
Strategies
• Confidence– Business is worth what a buyer will pay– Confidence in your own business– Instil that confidence in them– Be prepared to stay on
Strategies
• Start process minimum 3 years ahead– Find the right advisors (solicitor/accountant)– Get the skeletons out and sorted– Legal agreements, employment contracts– Audited accounts– Spend money to make money
Strategies
• Business plan– Future strategy – Business Link: Growth
Programme– Build a management team – Prepare forecasts and meet them– Projections; but with buyer’s resources
Strategies
• Due Diligence– In house M&A team– Too many issues and deal is dead– No surprises beyond HoT
Strategies
• Make your own buyer– MBO/BIMBO– Company purchase of own shares– Unlikely to achieve 10+ times
I’m a stakeholder…
…get me out of here!
Peter Mardon
Managing Partner
Winterbotham Smith Penley LLP
Non-disclosure Agreement
• Confidentiality undertakings• Exclusivity (lock out)• Costs indemnity• Enforceability• Limited disclosure
Heads of Terms
• Price• Payment terms• Deferred Consideration• Earn-outs• Taxation• Ongoing involvement (terms of service
agreement/consultancy• Net asset adjustment
Due Diligence
• Paper trail (warranties and disclosures)• The right impression• Employment contracts (especially key
employees)• Terms of business• Agreements with main suppliers/customers• Property (lease terms, asbestos reports)• Licences, etc. (e.g. Data Protection Act)
Share Purchase Agreement (SPA)
• Operative parts• Warranties• Indemnities• Completion accounts• Restrictive covenants• The Tax Deed (or tax covenant)
What to do Now
• Service Agreements for you and key staff with restrictive covenants
• Tax planning, e.g. transferring some shares to your spouse, children, etc.
• Terms of business and contracts with main suppliers/customers
• Lease• Tidy up statutory books and records at
Companies House
Stewart BarnesStrategic Development Team
Business Link
I’m a Stakeholder…
…Get me out of here
or
I want to be a Shareholder…
…Let me in there
Personal Background
• Stewart Barnes
– 10 years with £100m Hansen Group (third generation, privately owned)
– Overall responsibility for the group with 14 business units in 6 countries employing 1000 people.
– Business Unit MD at 31, Main Board Director at 34; joint-CEO at 37.
– Bought businesses in Sweden (2); Denmark, Poland, UK
– Sold companies in Denmark (MBO, MBI) and UK (MBO)
– 10 years with Pilkington in sales & marketing management
– Strategic Development Team assisting regional businesses to grow and develop.
Personal Learning
• Structuring a business to run it is different from structuring a business to sell it
• Prepare 3 – 5 years in advance to get best value (‘grooming’ though a high - performing business should be doing the following anyway)
– Grow turnover and profits over the period
– Sell property and lease it back: sort lease
– Write a business plan (clarity) and update it annually
– Hit budgets, forecasts will be more believable
– Build a management team (it is not about you)
– Clear roles and responsibilities and contracts of employment
– Improve processes: ISO 9001, 14001, IIP, EFQM
Personal Learning
• The deal always takes longer than you think (minimum 6 months)…
• …and you have to run the business as well.
• Get advice from accountant/auditor - construct the balance sheet
• Involve your solicitor (specialist)
• Manage the advisors – do not let them manage you!
• Understand the terminology – HoTs; SPA; due diligence; warranties; deferred consideration; information memorandum
Valuation• Be realistic (when you are selling)
• Can buy businesses very cheaply especially if the target is cash poor or in distress
• Rules of thumb:– Buy at four to five times earnings (PBT)– Sell at greater than eight times earnings (PBT)– Many aim for seven times earnings (PBT) which is on high side –
depending on sector can be between 5.5 to 8.
• Other indicators:– Sales factor can range from 0.4 to 0.6 of total sales– EBIT factor can range from 5 to 7– EBITDA factor can range from 4.5 to 6.5
Opportunity Knocks
• You may not be planning to sell, someone may come knocking – maximise sales value by having a plan rather than a knee jerk sale
• Management team may be the buyers – beware of releasing the Genie from the bottle; minimal warranties
• Some “cheap” businesses may come available as companies run out of cash
• “What do I need to do now to help me?”
Business Link Many levels of assistance
• General Bulletins – Business i• Seminars, Events, Workshops• Business Advisers• Specialist Advisers – Finance, Innovation, Marketing• Strategic Development Team
Call 0845 600 9966www.businesslink.gov.uk/southwest
Any questions?