For owners of small and medium sized businesses, the process of selling the company can be a daunting prospect, and expert advice is therefore critical to avoid the many possible pitfalls.
To find a suitable purchaser, prospective sellers must engage with the market without unduly unsettling staff, suppliers and, most importantly, customers.
Mark Hardwicke, managing partner at Solution Corporate Finance, says that managing a sale process for a small business is a very different practice from managing the sale of a large corporate.
Hardwicke believes that two of the most important considerations in this particular area of the market are confidentiality and momentum.
Solution Corporate Finance has recently completed a deal which saw satellite communications business Giga sold to Ultra Electronics for £39 million. Finding a buyer for the Hertfordshire business meant looking beyond its traditional competitors at companies in related sectors with synergistic benefits.
During the process, Hardwicke and Solution had to identify and approach a number of suitable buyers for Giga whilst ensuring that the sale process did not create an opportunity for rivals to be able to obtain confidential company information or poach unsettled staff.
‘Competitors may feign interest in order to get their hands on commercially sensitive information and “see the wires under the board” but then a week or so later will send an email saying that they have made a “strategic decision” to not go ahead with it, ‘ Hardwicke explains.
‘By then the damage may be done, they have confidential information and are in a position to disrupt staff and customers. The potential damage to the business being sold could be significant, threatening the sale process and, in the worst case, even jeopardising the viability of the business.’
Even if the business does survive to tell the tale, an overhanging failed deal process can have an equally detrimental effect, Hardwicke adds.
See also: Understanding the different deal structures when selling a business – A business sale can be one of the most complex processes any entrepreneur will face, so how can you make sure you are armed with all the information before taking the leap?
In order to protect confidentiality, Solution undertakes a careful screening process of potential buyers. The first step is to go out into the market and conduct robust covert research to ascertain who is in the market globally to make an acquisition, what they are looking for and whether that fits in with the company that is being sold.
Based on this research process, a shortlist of potential purchasers is drawn up and is discussed with the sellers in order to identify any confidentiality concerns. The shortlist comprises only businesses that have confirmed an appetite for making acquisitions and whose criteria meets the business being sold.
The benefit of this global research process was demonstrated on the Giga sale in that Giga’s ultimate buyer, Ultra Electronics, was not one that the Giga management team had even considered when they embarked upon the sale process.
Staying on track
Another difference between a small and large deal is the ability to keep the process moving along at a decent momentum, Hardwicke says. With smaller deals, problems often arise due to the difficulty in providing information quickly to interested parties.
‘Information requests are often slower, compared to bigger companies, which have a financial director and dedicated team, with systems that allow them to hit a button and get all the financials over to you in a single email,’ Hardwicke says.
Before going out into the market Hardwicke is firm believer that companies must make sure their house is in order. ‘There is no point in having a professionally drafted information memorandum if interested parties come back and say this opportunity is really exciting and I’d like some more information and it then takes three weeks to get it back to them.’
Preparation for the due diligence process should commence at the same time as the information memorandum, Hardwicke says, in order that the discipline of providing requested information is quickly established.
Keeping the deal moving is imperative, he adds, especially once it gets past the stage of heads of terms being signed. It is here that the longer it takes to ultimately close the deal, the greater the chance that the transaction will collapse.
He concludes, ‘As a lead adviser your job is to make sure that the other advisers remain on track. Sometimes if you have to throw your weight around then that is what needs to happen.’