Welcome to Game Plans for Growth, the regular newsletter from vfdnet written for Owner Managers. Each issue contains useful tips on a particular aspect of business growth.
This month we look inside the minds of corporate buyers. What positive features do buyers seek? What issues can kill a deal?
We hope that you find this newsletter useful. If you do, please forward it to other Owner Managers who may also benefit from it.
Companies which are seeking to grow by acquisition will be constantly looking at quite a number of ‘possible targets’ at any one time, however they are only likely to make one or maybe 2 acquisitions in a year.
This means that once a corporate buyer’s interest has been engaged they will follow a rigorous selection process, and reject any potential deal that does not appear to be completely ‘clean’. This leads to the expression ‘looking for the smoking gun’. Trust between both parties is critical in any deal situation, so should a significant piece of information come to light during the acquisition process, then the buyer may think ‘what else haven’t they told me’, and as a result get cold feet.
So if you are thinking of selling your business in the future then it will pay to ensure that you have eliminated any possible ‘negatives’ as well as being able to demonstrate all the ‘positives’.
Once your business has caught the attention of a corporate buyer the key points likely to feature in their decision making process are:
- What quality is the sales and marketing literature? What is the website like? The buyer is likely to use the website to start to understand the business model.
- How good is the Management? If the owner stands to make a ‘retirement sum’ out of the company sale then how good is the 2nd tier management? Are proper personnel policies and procedures in place?
- What quality is the management information? Do they use exception reporting? How accurate are the accounts?
- Does the business manage through a budget? If so how close does the business perform to their plan? Are the forward plans realistic and built with sound assumptions?
- Are the operational controls strong? Does the operational information show that the management are on top of the business?
- Which key trading relationships are protected by legal contracts? Are the clauses fair or onerous?
- What are the key barriers to competitors entering the market? What intellectual property exists to protect the businesses position?
- Do the owners have a realistic business valuation? How will I justify the valuation to the Board / investors?
The End Result
Case Study: The Sale of Silver Direct – £ Undisclosed
Silver Direct is a successful quality mail order and web based business which offers ‘Bond Street Silver at affordable prices’. The business has a turnover of £350k and boasts a loyal customer base with significant repeat buying and exceptionally low returns. The MD and Owner approached us to help him prepare his business for sale.
We worked with the owner and agreed a sale strategy which aimed to:
• identify the key business strengths
• scale opportunities (petrol in the tank for the next owner)
• find suitable buyers
• achieve a realistic valuation
• ensure the buyers focused on the future business plan as well as the current trading
We were able to advise the Owner on the initial information pack, how to find a suitable buyer, and how to approach the negotiations. Despite a wide difference in early valuation expectations, a satisfactory and fair consideration was agreed between the parties leading to a successful completion of the deal.
“…This gives me a great opportunity to express my very sincere gratitude to you for all the guidance and help you have given me over the last months. Your professionalism and expertise has surpassed all my expectations; the moral support when times have been tough has been so reassuring. Your skill, tact and professionalism did not go un-noticed by myself or the purchasers. Without you the sale would not have been achieved. I very much look forward to continuing our very enjoyable working relationship with other projects. I am truly grateful to you.”
Peregrine Pole-Carew – MD of Silver Direct