Deciding to sell your business is one of the most important decisions you are likely to make. Often this is a once-in-a-lifetime event; a way to consolidate and reap the rewards of years of hard work and dedication. So – when you do decide to sell your business – how do you ensure that you maximise the value achieved for your business?
Timing is critical to all M&A transactions. We could quite easily dedicate an entire article to timing (and, in fact, Nick Wallis, a Partner in our Deal Advisory department did just that here).
If you get the timing right on your decision to exit you not only enhance the likelihood of obtaining a successful deal, but can also maximise value. It is crucial to ensure your business is prepared for due diligence and is on a positive trajectory.
Credible growth opportunities
Acquirers frequently apply significantly higher valuation multiples to businesses that are growing. This multiple can be stretched even further if the business has credible future growth opportunities, from which the new owner will be able to attribute additional value.
The key word when it comes to growth opportunities is credibility. If you can demonstrate that your company’s growth opportunities which you present to potential acquirers are credible, investors are much more likely to believe in the growth prospects of your business and compensate you for that in the form of today’s value.
The best way to demonstrate credibility of growth initiatives is through proof-of-concept. Even taking relatively small steps to implementing a new avenue for growth can go a long way to demonstrating the viability of specific opportunities.
Maintaining momentum throughout the deal process
Maintaining momentum is important throughout the entirety of the deal process, whether that be during the process of receiving offers from multiple bidders or, once you have chosen the preferred party, throughout the due diligence period.
When reaching out and negotiating with several parties, momentum can help to create competitive tension, which will ultimately result in you achieving more favourable terms, both in terms of headline value and other considerations. It is advisable to keep interested parties at a similar stage in the process to ensure you are always in command of the deal timetable, which enables you to drive and control competitive tension.
Whilst maintaining momentum once you have a deal agreed in principle with an acquirer is unlikely to enhance the value negotiated up front, it will significantly mitigate the potential for price erosion from the buyer. In summary, the smoother and faster the process is, the more confidence an acquirer will have and the less time they will have to attempt to renegotiate the terms agreed in principle.
Maintaining momentum can be achieved in several ways. Firstly, ensuring that key members of the management team have capacity to deal with the onslaught on due diligence questions (in particular, MDs and FDs), either by planning out their time and delegating tasks, or through bringing on temporary help in the form of additional resource. Secondly, engaging with a corporate finance advisor to help alleviate the burden on members of senior management. The right advisor will also actively manage the process from start to finish.
To understand more about the ways you can maximise the value of your business, or to have a no-obligation chat about the value that you may achieve if you start the sale process today, please feel free to reach out to us at Gerald Edelman at GEDA@geraldedelman.com. Our specialist Deal Advisory team would be happy to discuss your situation with you.