Following the news that Carpetright founder Lord Harris announced he was selling nearly £13 million of company stock, is it now the end of a retail era for the business?
Why would such a well-known family-run business start to sell some of its shares? Why sell a family business, and how can you ensure you don’t regret the decision?
Why sell the family business?
Many dynamics can lead to either a full or partial sale of a family business. ‘Always remember you need not sell all of the family shares outright to a purchaser,’ says Gary Laitner, partner at Faegre Baker Daniels. ‘You could consider either going public on the stock market, establishing an employee stock ownership plan or selling a minority interest to a private equity company or to the new or existing management team.’
‘It’s also important to decide whether you would accept a period of earn out, where you continue to participate in the business for a set period, and the price you receive is related to the business performance or a fixed price now?’ says Thomas Clark, associate solicitor, corporate and commercial at solicitors Moore Blatch.
Watch the following video on exit strategies
Once you have established your objectives and consulted where necessary you should consider the following five points, says Clark:
- If the aim is retirement, then a lengthy earn out period is not likely to be suitable. You may want a full exit, releasing most of the money immediately, and for you involvement going reliance moving forward to be limited.
- If pursuing other ventures, you may are happy to stay on for a short time, or to leave some cash in the business.
- If the business is being passed to existing management or even family, it may be that you can assist with an orderly hand over of the business. You may also agree to leave some cash in the business to assist with financing.
- If a buyer cannot be found and no family wish to continue the business, then closure may be the most appropriate option, so you will want to maximise the value from the business assets.
- If you want to maximise price, then the buyer may need longer to pay, or require you to work on an earn-out following completion.
Laitner says, ‘You may have decided on an outright sale because the business cannot continue to finance your growth, you have no obvious successor in the family or family friction has stifled progress.’
He continues, ‘You may have received a great offer. Plenty of strategic buyers, large corporate companies, would love to buy family businesses of scale and size.’
“Don’t underestimate your company’s value to these buyers who struggle to develop cutting-edge entrepreneurial businesses on their own”
‘It is easier and quicker for them to buy the business you have spent your life building.’
Further reading on exit plans
- Exit planning: Essential, or a waste of time?
- Planning an exit strategy? Why profile needs to be on the agenda
- How to choose the right exit strategy
What to do to
‘Find yourself a trusted adviser, someone with experience in family company sales,’ says Laitner. ‘It may be a lawyer, corporate finance adviser or accountant. You will need someone you trust to coordinate the whole process. They will need to organise tax planning, valuing and marketing, price negotiation, due diligence and documenting the sale.’
‘Your advisers will also be able to discuss issues such as tax and the likes of inheritance tax and business property relief, as long-term financial considerations can have a big impact on the best exit structure and strategy, maximising the appropriateness and satisfaction of the sale,’ adds Clark.
‘Remember, you will be spending a lot of time with the trusted adviser – so make sure you like them,’ adds Laitner.
He adds, ‘Don’t wait until you are near retirement, under extreme competitive pressure or in financial difficulties. Try to time the sale so you exit in a benign economic environment when there is generally more appetite from purchasers.
“Don’t wait to sell up, as Lord Harris’ father did, until you have died. Try to be proactive and not reactive in your approach”
It’s important to establish what is important to you whether that is maximising value the key or preserving your legacy by maintaining the name and identity of the company.
‘Look at your business from a purchaser’s point of view and at the synergies they may achieve. Publicly and demonstrably build the brand profile and reputation of the business,’ says Laitner. ‘Make sure you have achieved the best cash flow and profitability you reasonably can. Don’t damage the business in the process; purchasers will inevitably look at profitability and cash flow over the last two to three years.’
He adds, ‘It’s also key to document your customer relationships and your intellectual property and lock in your key people and ensure they are motivated. Appoint a small team to handle the sale.
‘It is important to maintain confidentiality of the sale process so as not to distract too many people from their day jobs. It is so easy to concentrate on the sale process and neglect the nuts and bolts of the business itself.’
Keep your family in the loop
‘Involve your family in the decision making, says Laitner. ‘You may have some disappointed sons and daughters who will not be able to take the family business forward. You may not wish to give anyone a veto over the sale process, but at least engage in meaningful and real consultation.’
He concludes, ‘If you are looking to sell up your family business, or just part of it, there are numerous angles you must consider. By taking these steps and thinking ahead you will increase value significantly.’