All of us look forward to the day when someone wants to buy our Company and we can book a cruise or just head for the sun. But what should you do when the call comes in, to make sure you don’t miss the opportunity altogether or realise less than the business is worth? And if the subject is raised in a meeting, how will you respond?
All business owners, and particularly those with successful businesses and those in their 50’s should have an ‘aide memoire’ on hand for such an eventuality. This is what it should contain.
First ascertain whether you are talking to an intermediary or the principal; if they are an intermediary ask them to establish their credentials and whether they are retained by a purchaser – there are a lot of time wasters out there whose sole intention is to find out whether you are a potential vendor. If they are retained, ask for evidence or confirmation. Do not accept ‘our client wants to remain anonymous at this stage’. You want to know the identity of the potential purchaser. If in doubt your alternative strategies should be i) we only deal with principals or ii) you will have to deal with my financial adviser.
Secondly, satisfy yourself that the enquiry is really genuine by establishing the credibility of the person to whom you are talking, even if they are from a potential purchaser it could be the sales director of a competitor who will start a rumour that your company is for sale, in trouble or both. Take the call seriously, particularly if it comes from the Chief Executive or Finance Director but insist on seeing written evidence from their Board giving them authority.
Next, if the enquiry is unsolicited ask: ‘tell me why you want to buy us?’ and – unless the enquirer’s financial resources are beyond doubt, which they rarely are – ‘how can you demonstrate that you have the money’. Never assume a purchaser can afford to buy the business you may want to sell. On one occasion I was selling, on behalf of a client, to a public company which maintained their status was sufficient guarantee. In fact, they had to go to the market to raise the necessary funds. Be careful here too, because the answer may be ‘how much do you want?’ Be prepared for this and have your answer to the ‘price’ question worked out. More on that later.
The potential purchaser will not be expecting your next question: ‘tell me about other acquisitions you have made’. Usually they will be able to do so and often elaborate on how happy the vendors’ were after the sale. That pre-empts your next question which is ‘give me the names of the last three businesses you have bought so I can contact the owners’. It is vital to talk to the owners of other businesses which have been sold to find out how your potential purchaser behaved and also for you to find out what you are letting yourself in for!
If your potential purchaser is a competitor you will be concerned about disclosing confidential information without any guarantee the deal will go ahead. Now is the point to ask for ‘mirror disclosure’ – whatever information you give them about your business you get corresponding information in return.
At about this point they are beginning to realise you are a professional person who is well prepared for approaches from potential buyers; this also says ‘my business is professionally managed’ which heightens the person’s interest. They will probably ask for exclusivity, meaning you won’t discuss a sale with anyone else while you are talking to them. Do not resist this entirely but suggest a timetable in weeks so that the person knows exclusivity will lapse if talks don’t progress quickly. I have asked for a payment for exclusivity in appropriate circumstances as an added incentive to the potential purchaser.
If you are not really interested in selling matters won’t get this far, but if they do, the inevitable question of ‘price’ may be raised by the enquirer. If it is not, do not raise it yourself. Negotiations on price should never take place without your advisers input and then only once you have a willing buyer. If price is raised, often in the form of ‘what sort of value did you have in mind?’ your answer is ‘we are very experienced in these sorts of matters and realise that most owners of privately-owned businesses have an inflated view of the value of the business. We are very realistic and will expect you to come up with a commercial value we can both agree upon once our advisers have spoken together.’
If you have got this far ask for a letter signed by the Chairman confirming their interest and don’t forget to keep detailed notes of the conversation. Do not agree to send any information until you have received his letter and then only release information through you financial adviser. Note and copy to a file everything you do disclose so you can give it to your solicitors in due course for the disclosure letter.
My clients often tell me that if they are this assertive with a purchaser they may lose the opportunity. My experience is the opposite. Buyers expect a hard time if they are to acquire a good quality business. By following this process you will establish your reputation as a professionally run organisation and enhance your chances of a sale. If the potential purchaser is looking for a ‘cheap deal’ you won’t hear from him again and will have saved a lot of time which would otherwise have been wasted.
If you belief the opportunity is real, and are willing to sell, your next call should be to your financial adviser who has experience of selling businesses. You should ask him the same questions – particularly if the purchaser is a plc – how many businesses have you sold and can you provide me with testimonials and referees I can contact.
Too many business owners go to their accountant to get advice on selling their business; those that do rarely get the best advice and risk the sale not happening. Specialist advice is always worth it if the sale is the result of a life’s work to build up a successful business. After all the stress involved you’ll need a second cruise just to get over it!