An exit strategy should be an underlying consideration in a business owner's thinking at all times, writes BDO's Katharine Byrne.
When it comes to selling your business, the bigger picture is always important. The current climate of increased funding and renewed confidence has provided a strong foundation for those considering a sale. Over the last few years, valuations have improved as equity' buyers look to invest in growing Irish businesses. And since Brexit, more international firms arc looking to Irish companies as a gateway into Europe.
So is now the time to sell? Essentially, an exit strategy should be an underlying consideration in a business owner’s thinking at all times. This means having a clear understanding of where the real value of your company lies and what you need to drive it. It also means regularly reviewing whether the business has its assets properly aligned and is using the most taxefficient structures.
Whatever the reasons for selling, there are five key issues to address:
Get the right team
One core requirement is the need for a trusted adviser who can bring objectivity, security and structure to the process, but above all will know how to maximise the value of your business.
For many vendors, the first challenge is understanding what they are selling. Some owners come to the process with a historical focus, believing that the basis for their company’s value lies in the historical trading. Others sell on the future prospects, looking for a sale price that is based on aspirational growth and potential synergies.
The truth is that neither reflects where a serious buyer will be coming from. What they should focus their efforts on is what the business can achieve in the short- to medium-term, typically the two to three years from when the sale proceeds.
Know your business
Identifying the core values of your business, and what will attract a serious offer, is central to your selling process. Where succession planning or a sudden change in markets trigger a decision to sell, the challenge is to ensure there is a credible business plan in place to adapt to these changes. Meanwhile, companies on a high growth trajectory need to consider the funding required to achieve growth.
Understand the market
Establishing a credible buyers list at the outset and understanding their market dynamics will be key to a successful sales process. For midmarket businesses, a good adviser should be able to extend the geographical boundaries in the search for a buyer. Historically, SMEs in Ireland have not been strong in looking beyond the local options, but with many global firms actively considering openings here, the best opportunity may well be outside Ireland.
The strengths of a potential buyer and the credibility of their offer present another key concern in the sale process. One of the common pitfalls we see is a business owner jumping into an unstructured process, often on the back of an unsolicited offer. Owners may either provide a set of projections they believe to be credible but which don’t stand up under scrutiny, or share sensitive information without the necessary protections in place.
Another common issue is where the business owner holds back on a key piece of information that emerges late in the process and becomes a deal-breaker. By not preparing the company for the sales process, value can be leaked throughout the due diligence, resulting in a lower price and potentially damaging the business.
It might just be the beginning
If selling a business is an education, then it is also almost certainly an emotional rollercoaster too. Those who have gone through the process will often say they didn’t expect the experience to be so demanding. However, many will also say the process gives them an entirely new perspective on the business and left them with an appetite to get into something new, but this time with a much clearer understanding of where the value lies in a business.
Katharine Byrne is a Partner at BDO and head of BDO's Corporate Finance department.
Article originally published by Business Plus.