I'm a stakeholder... get me out of here!
Venue: Stratton House Hotel, Cirencester
Date: 23rd November 2010
Presented by:
Stewart Barnes - Business LInk
Will Abbott - Randall & Payne
Peter Mardon - Witerbotham Smith Penley LLP
Chris Brill
3. Personal Background
• Stewart Barnes
– 10 years with £100m Hansen Group (third generation, privately owned)
– Overall responsibility for the group with 14 business units in 6 countries
employing 1000 people.
– Business Unit MD at 31, Main Board Director at 34; joint-CEO at 37.
– Bought businesses in Sweden (2); Denmark, Poland, UK
– Sold companies in Denmark (MBO, MBI) and UK (MBO)
– 10 years with Pilkington in sales & marketing management
– Strategic Development Team assisting regional businesses to grow and
develop.
4. Personal Learning
• Structuring a business to run it is different from structuring a
business to sell it
• Prepare 3 – 5 years in advance to get best value (‘grooming’ though
a high - performing business should be doing the following anyway)
– Grow turnover and profits over the period
– Sell property and lease it back: sort lease
– Write a business plan (clarity) and update it annually
– Hit budgets, forecasts will be more believable
– Build a management team (it is not about you)
– Clear roles and responsibilities and contracts of employment
– Improve processes: ISO 9001, 14001, IIP, EFQM
5. Personal Learning
• The deal always takes longer than you think (minimum 6 months)…
• …and you have to run the business as well.
• Get advice from accountant/auditor - construct the balance sheet
• Involve your solicitor (specialist)
• Manage the advisors – do not let them manage you!
• Understand the terminology – HoTs; SPA; due diligence; warranties;
deferred consideration; information memorandum
6. Valuation
• Be realistic (when you are selling)
• Can buy businesses very cheaply especially if the target is cash poor or in
distress
• Rules of thumb:
– Buy at four to five times earnings (PBT)
– Sell at greater than eight times earnings (PBT)
– Many aim for seven times earnings (PBT) which is on high side –
depending on sector can be between 5.5 to 8.
• Other indicators:
– Sales factor can range from 0.4 to 0.6 of total sales
– EBIT factor can range from 5 to 7
– EBITDA factor can range from 4.5 to 6.5
7. Opportunity Knocks
• You may not be planning to sell, someone may come knocking
– maximise sales value by having a plan rather than a knee jerk sale
• Management team may be the buyers
– beware of releasing the Genie from the bottle; minimal warranties
• Some “cheap” businesses may come available as companies run out
of cash
• “What do I need to do now to help me?”
8. Business Link
Many levels of assistance
• General Bulletins – Business i
• Seminars, Events, Workshops
• Business Advisers
• Specialist Advisers – Finance, Innovation, Marketing
• Strategic Development Team
Call 0845 600 9966
www.businesslink.gov.uk/southwest
12. Valuations
• Start with historic profit
• Adjust for unusual items
– Director remuneration
– One off contract
13. Valuations
• PCPI average 10.7 (11.7) times historic
profit
– Mean deal size £13m
• UK200 SME index P/E 6.8
– Mean deal size £2.65m
14. Valuations
• Accountants usually apply 3-8 times
– Often for tax purposes
• Debt free / cash free basis
• How do you get a higher multiple?
15. Strategies
• Start process 3-5 years ahead
• Identify Issues and an action plan
– People; Processes; Customers; Products
– Find the right advisors (solicitor/accountant)
– Get the skeletons out and sorted
• Legal agreements, employment contracts
• Audited accounts?
16. Strategies
• Identify what are you selling
– Customer list
– Product/service
– Personnel skills
– Knowledge/know how
– Geographic presence
– What is your SCA?
17. Strategies
• Financial plan
– Prepare budgets and meet them
– Projections;
• What could market share be with buyer’s
resources?
• Good profit & growth history
• 5 x future profit = 10 x historic?
18. Strategies
• Build Confidence
– Business is worth what a buyer will pay
– Confidence in your own business
– Instil that confidence in them
– Be prepared to stay on
– SELL the business
– Too many issues and deal is dead
19. Strategies
• Find a strategic buyer
– Plc or private equity group - P/e ratios 15+,
– buying 5-8 times = immediate S/H value
• Set up an auction
– Need 2 and more interested parties
– Use a selling agent
20. The New Tax Regime
• Entrepreneurs’ Relief
– Lifetime allowance £5m gains at 10% (x2?)
– Individual allowance
– Must be claimed
– Business owned for 12 months
– Not business property unless
– Sold within 3 years of associated disposal &
– No rent paid
21. Company Shares
• Trading company
• 5% of the shares & 5% of voting rights
• Officer or employee
– Officer = director or secretary
• No substantial non trading activities
22. Property
• ER if owned by Co & shares sold
• But buyer may not want the property
• Use of SIPP or SSAS
• EFRBS
23. Summary
• Develop a clear 3-5 year plan
• Sell on future profits
• 10% CGT v 40%/50% IT on surplus cash
• Think about property issues
CAN’T SELL or WON’T SELL?
26. Heads of Terms
• Price
• Payment terms
• Deferred Consideration
• Earn-outs
• Taxation
• Ongoing involvement (terms of service
agreement/consultancy
• Net asset adjustment
27. Due Diligence
• Paper trail (warranties and disclosures)
• The right impression
• Employment contracts (especially key
employees)
• Terms of business
• Agreements with main suppliers/customers
• Property (lease terms, asbestos reports)
• Licences, etc. (e.g. Data Protection Act)
29. What to do Now
• Service Agreements for you and key staff with
restrictive covenants
• Tax planning, e.g. transferring some shares to
your spouse, children, etc.
• Terms of business and contracts with main
suppliers/customers
• Lease
• Tidy up statutory books and records at
Companies House
30. 3030
Agenda
Talk about my experience of building and selling a
Company
The factors that I found important
Answer any questions
33. 3333
My Own Experience
AudioSoft
– I founded in 1995
– Grew very rapidly
– Won D&T award for fastest growing Co in SW in 2000
– Over expanded
– Back on growth at 20% per annum
– Co always profitable
Sold to Ultra Electronics in August 2008
– Met objectives of sale
– Still with the Company
– I have a boss!
34. 3434
The thought stage
Reasons for sale?
– Approach
– Co’s growth starting to slow
– Reached the point of inflexion
– Consolidation
– Didn’t want to be working my backside off with a
smaller business
Summer holiday 2004
– 5 point plan
– Covered items like customers, IP, dependency on me,
future revenue streams etc
– Big question – Did I really want to sell?
35. 3535
The chew on it stage
If I did sell what do I want to do?
– Lie on a beach dreaming of selling business?
– New startup?
– Personal lifestyle issues
How would it effect employees?
– Loyalty
– Future
The deep hard question - Do I really want to sell?
36. 3636
Research Stage
My own research
– Various valuations etc
– Other Companies in similar industries
How would I sell the Co?
– Seminar
– What effect on my time – I am running the business!
37. 3737
Action Stage
Worked with Randall & Payne
– Full audit
– Advice
– Knowledge and experience from a trusted source
Appointed a Company which specialises in selling
Companies
– Not accountants
– Not solicitors
– Not a friend of a friend
– Sell your Company like you sell your product
38. 3838
Action Stage
Appointed BCMS summer holiday 2007!
Their process
– 6 months
– Generation of Information Memorandum
– 250+ prospective Co’s
– Letters sent out
– Meetings
– Offers
– Create a market
39. 3939
Accountants and Lawyers!
Right fit with the business
– D&T?
Why Randall and Payne
– They know our business.
– Size & resource
– Relationship – dealing with a Partner
– Response – Sat, Sun afternoon, on holiday.
Why is this important?
– It’s a new experience
– Still running the business – hence likely to be
outside normal office hours
40. 4040
Legal Advice
Two options;
– BCMS recommendation
– Accountant recommendation
Why AES Winterbothams?
– Size
– Dealing with a Partner
– Importance to them
– Close relationship with Randall & Payne
– Personal previous experience
41. 4141
The right team – why it is important
Still running the business
– How many hours are there in the day?
New experience for the vendor
– Acquirer may be doing this all the time
One thing I can guarantee
– There will be problems – Heads of Agreement
meeting
Reassurance for the buyer
– Post acquisition comments
– Our acquirers were very complementary about the
team
42. 4242
Summary
Plan to make the Co fit for sale – timing is vital
Sale process – remember you must still run the business
Professional advisors – engage early and get a team that
is right for you.
Valuation – be realistic. There will always be an
expectation gap.
Keep something on the table for the acquiring Co