The substantial uplift in global M&A activity saw deal values hit a new high of US$29.35bn (£20.7bn) last year with growing demand for mid-sized firms.
Despite the encouraging backdrop, uncertainty, largely surrounding the outcome of Brexit, persists. To ensure British businesses remain attractive for potential buyers, Angus Grierson, managing director at LGB Corporate Finance, advises business owners how to prepare for a company's sale to secure the best price and ensure the transaction runs smoothly.
Strengthen the finance function
An under-developed finance function can often be the result of a business owner's focus on growth and expansion, particularly if no full-time finance director is in place. A lack of reliable management information can impede, if not de-rail, a sale process as this information is used to value the business and validate the model and market positioning. Owners should think at least three years ahead and invest to strengthen the finance function to satisfy the most stringent due diligence process. Businesses will always face uncertainties. By demonstrating robust processes and having clear data available, a business owner will be well placed to deal with scrutiny in a sale process.
Select the right exit route
Understanding the difference between a trade and a private equity (PE) buyer is crucial as each look for different attributes in a business and undertake due diligence from different perspectives. Trade buyers typically seek strategic advantages (new products, markets or technology) to complement the existing business. A PE buyer will focus on generating a strong return on investment by growing the top line, while also enhancing earnings.
Other routes to consider include selling via a management buy-out (MBO) or an initial public offering (IPO). In an MBO, the management team will know the business well but may need a PE backer to help fund the purchase. Going down the IPO route means a number of new shareholders to satisfy and the added burden of stock exchange rules with which to comply.
Think about the impact of market conditions on price
Price is only partly driven by the fundamental value of a business. There are peaks and troughs in global M&A activity created by macro-economic factors. Cost and availability of financing, and prevailing public markets valuations, will each influence financial and strategic buyers' willingness to pay up for businesses at different times. A business should be "sale ready" in order to capitalise on changes in market conditions.
Demonstrate a convincing growth strategy
Any prospective buyer will want to know the potential for further growth, and management teams will need to demonstrate their firm's ability to develop new revenue lines and penetrate new markets. They will also need to demonstrate how they intend to finance growth initiatives. Another way of demonstrating growth potential is to strengthen the firm's skills base. Investing in training and development, or recruiting employees with specific skill sets that can drive growth in different markets can also have a positive impact.
Choosing the right corporate finance adviser is key. Select one that demonstrates a solid understanding of a management team's approach and vision for the future of their business. You will need to rely on your adviser to take care of all aspects of a transaction, so that you can continue to run and grow your business with minimal distraction.