By Benoit de Courcelle, Managing Director at Mirabaud Advisors
For many entrepreneurs, selling the company they founded or inherited from their parents, whether to a competitor or to a private equity fund, is a hard decision to take. More often it is a difficult process to envisage, a leap into the unknown for entrepreneurs faced with selling up for the first and potentially last time in their lives.
Surprisingly, optimising a selling price is rarely the unique or most important objective to the vendor: selling is more often a question of finding the right partner ready to commit to the continuity of an activity or a name, ensuring a future to loyal and dedicated employees, or taking care of and nurturing the goodwill built over the years with clients and suppliers.
This is why being accompanied by the right advisor makes a difference; an advisor able to place at the forefront not just financial but also operational and personal aspects.
Based on our team’s experience, below are some key “dos and don’ts” for those trying to get the most out of the selling process.
DO
Know your industry, your competitors, your strengths and weaknesses in granular detail. Any potential buyer needs to see a business owner in full control of every element of their company, no matter how small.
Be curious and meet in person not only with clients, but also suppliers, competitors and… potential buyers. Networking is key.
Separate ownership and management: put in place a solid organisation, with managers trained and prepared to take the lead of the business. For smaller entities, having polyvalent employees can be a strength. Also ensure you have “clear and clean” roles for related parties (i.e. sellers’ family members).
Be aware that management participation and motivation in a sales process is crucial and often the new owner will ask the management to co-invest. Involve key management at an early stage, offer a signing bonus and discuss options for management to co-invest with a new owner.
Prepare the business: formalise the informal; sign contracts with clients; if relevant, put in place purchasing process with suppliers; adopt flexible IT systems which will facilitate future integration.
Talk about the future: have a plan for what happens after the transaction, whether you want to stay or not. Remember that you sell your company for what it will deliver in the future, not for what it did in the past. Come with development ideas rather than achievements.
Undertake your due diligence on potential buyers in forensic detail. All buyers are different, including within the same category – private equity and corporates. Culture, HR, commercial practices can differ significantly, so it’s better to know it before signing than have a nasty surprise afterwards.
DO NOT
Focus only on price: this is the most common pitfall for sellers. Price is only one component of a transaction – albeit the most visible though. However, many other aspects of the transaction, usually transcribed in a share purchase agreement, are equally if not more important. A typical example is the so called “purchase price mechanism”: often, sellers and buyers will agree on a price for the company as if there was no cash nor financial debt (the so called “Enterprise Value”) and adjust the payment at the time of the closing of the transaction (the “Price Paid”) based on the actual amount of cash or financial debt. However, usually the buyers will require a minimum amount of working capital at closing to ensure business continuity, and this amount will be discussed and pre-agreed between parties prior to the closing; the amount of this pre-agreed level can have a significant impact on the final price paid.
Rush; take the time to consider various alternatives. Some buyers – particular private equity these days – can be highly creative. Also, take the time to negotiate what really matters and be sure to keep control of the process.
Commit on what you do not control. Never accept clauses where a portion of the price would be released based on a performance post transaction (so called “earn-out”) if you have no control or visibility over it.
Allow for 1:1 discussion with one buyer. Discussing a sale with only one buyer will leave the control over the process in their hands. You will need to approach several buyers and collect multiple offers to ensure you chose the best option for you and your business.
Communicate your price expectations to any buyer. A well-run sales process will result in the best outcome and maximise your sales price. By telling a buyer your price expectation, you could end up either selling for too little or driving away a potential bidder who would otherwise have been interested.
As a final recommendation: be advised and accompanied during the process. Potential buyers have experienced teams they use to manage acquisitions and without an experienced advisor, could run rings around a seller. Having a professional advisor to negotiate also helps the seller to maintain a good relationship with the buyer throughout the process, a definitive advantage for the next stage in their journey.
By Benoit de Courcelle, Managing Director at Mirabaud Advisors
For many entrepreneurs, selling the company they founded or inherited from their parents, whether to a competitor or to a private equity fund, is a hard decision to take. More often it is a difficult process to envisage, a leap into the unknown for entrepreneurs faced with selling up for the first and potentially last time in their lives.
Surprisingly, optimising a selling price is rarely the unique or most important objective to the vendor: selling is more often a question of finding the right partner ready to commit to the continuity of an activity or a name, ensuring a future to loyal and dedicated employees, or taking care of and nurturing the goodwill built over the years with clients and suppliers.
This is why being accompanied by the right advisor makes a difference; an advisor able to place at the forefront not just financial but also operational and personal aspects.
Based on our team’s experience, below are some key “dos and don’ts” for those trying to get the most out of the selling process.
DO
Know your industry, your competitors, your strengths and weaknesses in granular detail. Any potential buyer needs to see a business owner in full control of every element of their company, no matter how small.
Be curious and meet in person not only with clients, but also suppliers, competitors and… potential buyers. Networking is key.
Separate ownership and management: put in place a solid organisation, with managers trained and prepared to take the lead of the business. For smaller entities, having polyvalent employees can be a strength. Also ensure you have “clear and clean” roles for related parties (i.e. sellers’ family members).
Be aware that management participation and motivation in a sales process is crucial and often the new owner will ask the management to co-invest. Involve key management at an early stage, offer a signing bonus and discuss options for management to co-invest with a new owner.
Prepare the business: formalise the informal; sign contracts with clients; if relevant, put in place purchasing process with suppliers; adopt flexible IT systems which will facilitate future integration.
Talk about the future: have a plan for what happens after the transaction, whether you want to stay or not. Remember that you sell your company for what it will deliver in the future, not for what it did in the past. Come with development ideas rather than achievements.
Undertake your due diligence on potential buyers in forensic detail. All buyers are different, including within the same category – private equity and corporates. Culture, HR, commercial practices can differ significantly, so it’s better to know it before signing than have a nasty surprise afterwards.
DO NOT
Focus only on price: this is the most common pitfall for sellers. Price is only one component of a transaction – albeit the most visible though. However, many other aspects of the transaction, usually transcribed in a share purchase agreement, are equally if not more important. A typical example is the so called “purchase price mechanism”: often, sellers and buyers will agree on a price for the company as if there was no cash nor financial debt (the so called “Enterprise Value”) and adjust the payment at the time of the closing of the transaction (the “Price Paid”) based on the actual amount of cash or financial debt. However, usually the buyers will require a minimum amount of working capital at closing to ensure business continuity, and this amount will be discussed and pre-agreed between parties prior to the closing; the amount of this pre-agreed level can have a significant impact on the final price paid.
Rush; take the time to consider various alternatives. Some buyers – particular private equity these days – can be highly creative. Also, take the time to negotiate what really matters and be sure to keep control of the process.
Commit on what you do not control. Never accept clauses where a portion of the price would be released based on a performance post transaction (so called “earn-out”) if you have no control or visibility over it.
Allow for 1:1 discussion with one buyer. Discussing a sale with only one buyer will leave the control over the process in their hands. You will need to approach several buyers and collect multiple offers to ensure you chose the best option for you and your business.
Communicate your price expectations to any buyer. A well-run sales process will result in the best outcome and maximise your sales price. By telling a buyer your price expectation, you could end up either selling for too little or driving away a potential bidder who would otherwise have been interested.
As a final recommendation: be advised and accompanied during the process. Potential buyers have experienced teams they use to manage acquisitions and without an experienced advisor, could run rings around a seller. Having a professional advisor to negotiate also helps the seller to maintain a good relationship with the buyer throughout the process, a definitive advantage for the next stage in their journey.
By Benoit de Courcelle, Managing Director at Mirabaud Advisors
