SELLING A COMPANY IN A DOWNTURN
In the current climate it is tempting to assume that no one will want to sell a business. The obvious fear is that potential buyers will either be unable to raise the funds, or will use the situation to negotiate the lowest price possible. However, activity continues with personal, financial and strategic reasons encouraging sales.
Good companies will continue to attract good market valuations and some sectors will remain buoyant, or even improve in attractiveness e.g. the housing rental market.
To achieve maximum prices, business owners keen to sell, MUST reduce areas of risk to potential acquirers, paying close attention to:
Management structure
Good solid second-tier management that can improve on past success and maintain customer satisfaction and loyalty
Spread of customers
Where the business is concentrated in the hands of a small number of key customers, buyers get nervous
Owner / Management dependency
When owners maintain a dominant role linked, in particular to key customers,
buyers worry about the loss of those relationships
Reliance on mature products and services
Buyers become disenchanted when they can see little or no new opportunities for growth or development in the future.
When selling a business, appointing advisors with proven research and marketing capability will ensure the right buyers are unearthed. Where a strong strategic rationale to acquire the business exists, conclusion of the deal is much more likely. Generating competition among potential buyers will be beneficial both to the price and the process.
Throughout the process buyers will constantly look for signs of weakness within the target business or its market. Therefore, vendors must remain focused on managing the performance of the company during the process. Signs of declining performance or a weakening order book will encourage buyers or their backers to renegotiate the deal or pull out altogether.
And what can the sellers do from their side of the transaction? Ensure strict adherence to a clearly structured timetable; demand proof of funding early and grant exclusivity for short periods only. Keep other interested parties warm and aware of the progress of the deal. This gives the sellers alternatives and should help to keep the preferred bidder “honest”.
Fortunately, we live in a free market where transactions will continue regardless of the economic climate. There will always be those who are looking for opportunities. Buyers will remain optimistic and company sales will still continue.
For further information, please contact Joel Penrose at Pace Equity.
Email: joelpenrose@paceequity.com
Tel: 01491 577889