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Gearing up to sell a company

Acquirers can often buy businesses for less than their real value by identifying hidden upsides and eliminating unnecessary costs. Preparing a business for sale can increase the valuation put on it by prospective purchasers as a seller can present their business in its best possible condition.

Sellers should start preparing a business for sale over a period of time, typically at least two years. A relatively straightforward way to enhance the value placed on a business is to cut investment in parts of the business that add little in terms of business valuation and spend more on those that enhance the company in the eyes of a prospective purchaser. In addition, sellers should review the strategic direction of the business so that it is best positioned in the market. These initiatives can improve profitability in time for a sale but also the longer-term strategies should be reviewed which will lead to additional profit by the sale date. Other potential practical issues should be considered and dealt with, such as extracting any assets that will not form part of the sale (e.g. property), how will the business be sold (typically a sale of shares or assets) and carrying out the sale in the most tax efficient way.

In the lead up to begin a sale process, sellers should consider obtaining an official valuation from an external accountant/corporate adviser in order to understand the realistic value of their business.  In addition, the financial and legal records of the business should be reviewed so that they are ready for a rigorous due diligence process. Again, it could be beneficial to engage a specialist adviser to assist the business in preparing for financial and tax due diligence in order to help protect value during the negotiations. Typical areas where a buyer can attempt to erode the valuation is around working capital and the definition of debt like items in a traditional cash-free debt-free deal.

Whether the acquirer is likely to be a corporate, private equity house or management team, our Corporate Advisory team has dedicated corporate finance experts who have experience in helping businesses prepare for sale, the valuation of businesses and the due diligence process. They are supported by the firm’s Corporate and Business Tax team, who ensure any potential obstacles are identified and dealt with.

If you would like to discuss any aspect of selling a company, please get in touch with Mike Orton or a member of our Corporate Advisory team.

 

 

Date: 20th July, 2017
Author: Mike Orton

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