Up for sale? Commitment and preparation are first and foremost

| September 14, 2011

Selling a business is rarely a simple transaction, for good reason.

As Account Director in Corporate Advisory at Deloitte Private, David Tyrrell provides daily Merger and Acquisition advisory services on transactions including acquisitions, divestments and equity raisings.

“It is estimated that up to 75 per cent of privately owned businesses will change ownership over the next 10 to 15 years,” Tyrrell notes.

“Many owners of private businesses, who are now well into their 50s if not 60s and 70s and have no family succession alternative , will need to consider selling their businesses, preferably at a date of their own choosing rather than as a result of other unexpected circumstances that can sometimes come into play.”

What are the first things to consider for an owner who wishes to choose their own timing?

“Owners need to appreciate that a properly managed sale process might take 4 to 5 months and there are a number of related steps to go through as part of this process. We also emphasise to owners that you need to continue to focus on running the business notwithstanding the distraction of a business sale, because the last thing you want is for the performance of the business to start to tail off during a process,” Tyrrell advises.

“Understanding this, as well as having a realistic view of the value of the business, are key matters to be considered by a vendor owner.

“Associated with this is understanding what amount of the sale consideration is likely to remain with the owner, for instance once you allow for any associated debts, working capital, excess assets, transaction fees and related tax liabilities et cetera. Similarly, purchasers may require some consideration to be withheld subject to the achievement of financial or other milestones on which the transaction is premised.

“Structuring issues and tax planning are particularly relevant, because what a vendor owner might end up with could well be quite different to the headline sale figure achieved on the sale of the business.”

And if an owner is not properly structured or prepared for such matters?

“Quite often businesses simply aren’t ready to be presented for sale — it’s not a case of waking up one morning and saying ‘yes I am going to go out and sell my business today’. Businesses need to be prepared for sale as well as be presented in the best light.

David Tyrrell suggests owners should ‘put themselves in the shoes’ of a buyer. “Imagine you are a potential buyer of the business and critically consider what you would expect. Take off the rose coloured glasses, play devil’s advocate and observe. Owners can often be quite surprised by what they see. It is critical the business is presented in the best light in order to maximise value. After all, the owner will only sell the business once.

“It is always preferable to have had a solid year’s performance behind you when going to market. Buyers value actual results and not “blue sky”. If it is likely the business can substantially improve its financial performance in the forthcoming year then we may well encourage the owner to go away and lock in this result before trying to sell the business. A buyer is securing future cash flows and therefore the less risk attached to realising these cash flows the higher value a buyer will attach to the business.”

Even allowing for several months planning and preparation, is the current environment sound enough for selling a business?

“It is a challenge at the moment as there’s a fair degree of uncertainty in the market to a whole range of matters both in Australia and overseas.

“That said,” Tyrrell opines, “a business with good brands, solid prospects and favourable market position will always attract interest. We have a number of clients and are aware of a range of trade and financial buyers, including private equity funds, who are keen to be introduced to attractive acquisition opportunities at the moment.

This opinion piece was first published on Deloitte Private Matters and is reproduced here with the kind permission of the author.