Nick Britton speaks to entrepreneurs about their triumphs and regrets in selling their businesses
“Entrepreneurs often believe that if they start a company and own it, they are skilled enough to sell it. That often isn’t the case.” David Jackson, CEO of marketing research specialist Site Intelligence, has participated in three exits. He believes that selling a company requires skills and knowledge that will put most business owners “outside their comfort zone”.
Mark Barlow, a founding partner of marketing and communications group Hasgrove, agrees: “Successful business owners have all got egos – it’s part of their make-up – but it’s also true that they don’t know what they don’t know. It’s not until the exit that this becomes clear.”
Here, entrepreneurs who have earned their exit stripes offer a guide to making your exit a heavenly, as opposed to hellish, experience…
Alan Jones was the CEO of Shuttle Technologies, which developed a chip for USB devices in the days before they were popularised. Jones sold the company to Nasdaq-listed SCM Microsystems in 1998 in an all-share deal worth $33 million (£16.5 million).
But Jones regrets not taking specialised tax advice as he ended up paying full tax on the shares he received in return for his company. “I’m still quite bitter about it,” he states. “To anyone selling a business, I would say get good tax advice, and make sure that you pay for it.”
Most first-time business sellers underestimate the amount of time, effort and sheer hassle involved in a typical sale.
Mark Barlow describes his exit of IT Counsel as “mind-blowingly onerous”. After eight months of negotiations, he and his acquirer travelled to Oxford with their respective legal teams to seal the deal.
“I expected it to take a day. It took four days, and each one of them we were up until two or three in the morning. At some points we were on the point of saying, “Let’s just get a cab home and tell them where to go.”’
Wanting to get the best valuation for the company you have slaved over is understandable. But asking for too much can be a turn-off for prospective buyers, according to Tony Hayday, who sold his own direct mail business, DPS, before setting himself up as an investor.
“Overvaluation is very, very common,” he states. “If you’re a start-up and you pitch it too high (or too low, for that matter) people like me will just walk away.”
Ready to exit?
Naturally, working out exactly where you are on the growth curve is easier said than done. And there are unforeseen events – like the dot-com crash or 9/11 – that can wipe millions off your company’s valuation through no fault of your own.
Barlow advises start-ups in his sector that “if someone wants to buy it, then sell it”. Jackson has a similar view: “You have to look at the risk of running it versus the reward you could get today. My feeling is, the minute you feel as though new competition is coming, or the market is changing, or when you’ve done really well and people see the value, that is the time to take some advice.”
It may seem an unlikely failing in a hard-working business owner. Nevertheless, while all your effort is going into sales and marketing, less gripping areas of work may be neglected – such as bookkeeping.
Simon Campbell sold the Spanish arm of his web applications company, Conexia Multimedia, last year for a six-figure sum. He concedes that Conexia’s accounts were ill-prepared for the scrutiny of a potential acquirer. “I don’t come from a financial background, so I just got on with stuff and put money into the company to get it going,” says Campbell, now MD of paper mail-via-web business ViaPost. “To put the books in order when you haven’t been keeping records properly is a real pain.”
That pain is intensified when due diligence begins. “[A potential acquirer] is going to dig into the numbers, the contracts, all the details,” he says.