The process of selling a business is usually a significant undertaking, with multiple challenges. In a recent webinar, our panel of highly experienced tech sector business leaders shared their views on what you need to know about selling a business.
Successful business exit planning requires owners and senior management to consider a variety of data points, metrics, market concerns, buyer demands, and more; while still running the business during the transition.
To find out more about the nuances of how to sell a business, we assembled a panel with experience of it:
Colin Blumenthal, Vice President, IT Services Europe, Sharp Europe
Mark Howling, Chairman of four private equity-backed businesses
Jim Rogers, Head of Grant Thornton's Thames Valley office
The panel shared plenty of detailed insight and guidance on how to find a buyer for your business and the issues that you need to prepare for when planning a business exit strategy.
One of the first steps to selling a business is getting the most value out of the sale by attracting the best buyer for your business.
Gareth, who is a specialist in technology, media and telecoms deals, talked about value drivers in the run-up to a transaction. To optimise value, the timing needs to be right, which means knowing the market is ready and that buyers will be interested when you’re looking to sell.
To ensure a high level of interest, businesses need to have strength in depth, including having a robust financial profile, typically showing 2-3 years of growth and indicating strong future growth. In addition, illustrating clear points of difference with competitors and a unique market offering is a great way to ensure premium value.
Gareth stressed that value could mean different things to different people, so when compiling a proposition for a prospective buyer, make sure to consider what they’re specifically interested in and what they’ll be looking to acquire – as this could be very different to other buyers.
Mark Howling stated that for him, the whole process took two years, with the first year largely dedicated to profile-raising activities. He went on to highlight that, to get the best value, you need to be clear about what the business is and where it’s going. This messaging needs to be consistent across the organisation and requires a well-defined strategy with metrics that support your claims.
On specific metrics, Jim Darragh recommended tracking the churn rate of customers and net retention ratio. He advised that a target level of below 5% should be set for the churn rate and that net retention should be looked at every day. Demonstrating the ability to win customers and sell them more over time shows that the business is futureproof.
Colin Blumenthal added a couple of things you can do early on to help drive value.
These processes include considering where the business’ weak areas are, addressing these, and maintaining a high level of recurring revenue. Colin also advised that, especially in the tech sector, the seller should be making sure that the workforce’s technical skills are current and up to the potential buyer’s standards.
When should you start thinking about value?
Jim Darragh emphasised that it’s good to always be thinking about the market and valuations, even when you’re not looking to sell. In Jim’s experience, making sure that each board meeting has some focus on this issue is a great way to ensure that any new trends that impact value can be assessed.
He pointed to the fact that not having an environmental, social and governance (ESG) strategy can be detrimental to a business’ value as a good example of how value drivers can change and adapt over time.
Choosing a buyer
The conversation went on to examine how to choose the right buyer, with every member of the panel agreeing that it was about more than just the amount offered.
Mark explained that appointing a suitable adviser was essential to finding the best buyer. To do this, he recommended choosing an adviser with a comprehensive understanding of the market and the business, so you can be confident that they can represent you and facilitate conversations in the right places.
Another decision that needs to be made at an early stage is whether to sell to a private equity or trade entity. Mark explained that it’s critical to understand where the most interest is likely to lie and where the most value will come from, as well as knowing which path will keep both management and the buyer happy.
Colin added that cultural alignment can be more important than price. When he sold Complete IT to Sharp Electronics, they weren’t the highest bidder, but the offer was the best for the whole team and the company’s shareholders.
On this point, Gareth stressed that sometimes a high offer may, in reality, be undeliverable and that the buyer that’s done their homework and is being realistic may be better than one that’s placed a higher value on the deal.
Completing the transaction
To successfully complete the deal and make the transition, you need to prepare both the business and yourself.
Everyone on the panel stressed the importance of a strong management team throughout the exit, as the sale will take up so much of the business leader’s time that they will only have the capacity for limited input into day-to-day operations.
Jim Darragh emphasised this point, saying that roughly 80% of the CEO’s time is going to be on the sale - gathering information, giving presentations, answering questions, attending meetings, liaising with advisors, and generally spending several months doing everything possible to make sure the deal is a success.
The speakers agreed that the process adds a lot of extra work and that it can be very emotionally draining, especially when uncomfortable questions and potentially derailing situations occur. In Mark’s experience, the most difficult issues tend to come up at the end, when you’re already very tired, which is why it can be best to try and control the process as much as possible for as long as possible.
Jim Rogers reflected on the need to be a resilient leader at this time to cope with all the extra work and pressure.
Finally, the speakers all agreed that despite the stresses, it’s always worth it. The unexpected benefits include a change of pace that gives you new insights into the business.
They also concurred that once the deal is done, the most essential next step is a holiday!
For more guidance on business exit planning, get in touch with Gareth Davies.