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Thinking of Selling your Business?

Securing a strategic premium

The goal of any sale process is to maximise shareholder value, both financial and non-financial. A successfully executed sale is best achieved by detailed research, planning, timely communication, a well-managed process and, most importantly, appointing an experienced sale advisor and planning well prior to the actual sales process.

The 10 steps in planning for a sale with a strategic premium:

  1. Pick a good, experienced advisory team
  2. Confirm motivations, objectives and desired outcomes with shareholders and management
  3. Undergo a data collection session with the advisory team to ensure they thoroughly understand the business
  4. Identify transaction issues
  5. Develop a transaction strategy
  6. Implement change where needed
  7. Position for a transaction
  8. Research
  9. Identify ’Natural Owners’ – those that benefit most from an acquisition
  10. Track industry activity.

While each step is important, InterFinancial invests a significant amount of time understanding the seller’s desired outcome. The issues that need to be considered include:

  • timing
  • drivers (e.g. tax planning)
  • expectations (e.g. price expectations)
  • post transaction involvement and exposure to the business’s risk
  • other personal matters (e.g. relatives, staff, clients and competitors).

It is also important to understand any limitations or constraints on the transaction process or outcome, including: no-go counterparties, asset exclusions or inclusions, minority stakes, and the level of post-sale interest or risk positions the seller is prepared to take (e.g. earn outs, property ownership and/or leases, warranties, and indemnities).

A second significant matter is that you need to understand who the right buyer is; ensure the goals and expectations of the seller align with the profile of the business and capital market expectations.

To secure a strategic premium when selling your business, you need an advisor that has sales experience with a range of investors and buyers, including financial investors, strategic investors, and Initial Public Offering (IPO) markets to enable them to identify the right buyer and best sales process.

Financial Investors  Strategic Investors  Initial Public Offering
  • View investment as strictly financial and, therefore, cash flows and growth potential are important.
  • Generally do not take part in day-to-day operations of the business (i.e. are in board roles).
  • Use net present value (NPV) and internal rate of return (IRR) as investment metrics and measures of investment-worthiness.
  • Use leverage or debt to enhance returns.
  • PE firms generally have a 3-5 year holding period before exiting investment through a trade sale or IPO.
  • Strategic investors are generally less concerned with cash flows than financial investors.
  • Earnings per share (EPS) accretion to the acquiring company (if listed) is an important investment criterion.
  • Able to realise synergies and, therefore, could (theoretically) pay a higher price.
  • Strategic investors may bring management capability and additional intellectual property (IP), marketing and distribution networks.
  • Usually acquire with a view to hold for the long-term, unlike financial investors.
  • ‘Going public’ via an IPO introduces public funds into the company. However, the costs of going public are considerable.
  • The compliance, disclosure and regulatory regime can be onerous for some – as is life in the public eye.
  • A public listed company has the capacity to tap into the equity capital markets for further capital if required.
  • Provides a future liquidity option to founders or owners.
  • ‘Going public’ may also assist in cementing the company’s brand and trademarks, as well as establishing a beachhead for overseas expansion.