There are many pitfalls in selling a business. Tony Hayday, CEO of The Software Bureau, talks to M&A about making sure you get the right price

There are many pitfalls in selling a business. Tony Hayday, CEO of The Software Bureau, talks to M&A about making sure you get the right price

After setting up direct mail company DPS in 1992, CEO Tony Hayday sold the business in 2005 to Swedish mail company Stralfors for £8 million. At the time of the deal, DPS had a turnover of £13.5 million and net profits of £1.3 million.

‘We were very lucky with the timing,’ says Hayday. ‘Shortly after we sold the company, the market went pear-shaped. Also, we were approached, so we didn’t need to appoint an agent.’

The deal may have fallen into Hayday’s lap, but he had been considering a sale for some time. ‘We had made the decision to sell the business about three years before we actually got round to it. We knew that in this sector, the maximum profit we were going to make was £5 million.’

Once the deal was on the table, Hayday says it all came down to having the right legal team: ‘All the wrangling is done between the lawyers, you just sit there like a prune. They need to understand what you want on each issue.’

Asbestos clean-up

One issue in particular proved a bone of contention. While Hayday had taken pains to make sure the company’s properties were free of asbestos, the buyers wanted the vendors to sign a covenant making them liable for future asbestos claims. In the end, the buyers dropped the covenant: ‘I said no way. I was not going to be held responsible for what they do.’

Another issue that came up was earn-outs. Hayday recognised that an earn-out provision could have pushed up the price, but he made it clear that he wasn’t interested: ‘To be honest, the thought of working for someone else was horrendous, and besides, I had other fish to fry.’

The deal was completed near the height of the M&A market, another stroke of luck for Hayday. He admits that he might think twice about attempting such a feat now: ‘In terms of price and valuations, I wouldn’t have bothered trying to sell the business in today’s environment. I would say now, you need to be clear about the minimum amount you’re willing to receive. That’s the starting point.’

Hayday also notes that there are other ways of pushing up the price: ‘As soon as a business gets to a turnover of £13 million, it’s an interesting level. I wish I had managed to get the business up to £20 million, because at that level you don’t even need to be all that profitable to command a higher multiple. It is that valuable.’

As part of the deal, Hayday acquired data management business The Software Bureau from the buyers, Stralfors. He says: ‘It was a pretty good deal, I received £8 million [for DPS] and a business.’

That is not the end of Hayday’s business interests. Since selling DPS, among other things, he has invested in a mortgage broker, an Australian online television station and a social networking website.

Hayday adds: ‘I’ve invested in lots of businesses. I’m like a trainee dragon and I’m still looking for acquisitions.’