While there is plenty of information available on starting a business there is little advice on how to exit your business. So what happens when it is time to retire, diversify wealth, or just make a lifestyle change? How do you maximise the return on your ‘sweat and tears’ and financial investment over the years?
“There are very important decisions a business owner must make and it is vital that a qualified and experienced professional be appointed to advise on the deal,” says George New of Horizon Capital Corporate Finance, a Cape Town-based, ‘boutique’ Corporate Finance house, specialising in the sale and acquisition of medium sized enterprises. Selling a business can be a very complex and time-consuming proposition with many issues to address.
Is the economic environment conducive to selling?
A buyer’s view on the future economic situation and how it will impact on the business is a primary factor. Slow economic growth puts pressure on buyers to grow their businesses through acquisitions. Furthermore, high stock market valuations and low interest rates provide a favourable market for the sale of a business, and tends to increase the attractiveness of acquisitions.
New says Horizon Capital Corporate Finance is currently looking for businesses for buyers, be they corporates, medium enterprises or private investors, across all industry segments.
Be compliant and maximise value
A business can be sold under different types of sale agreements each having very different tax, legal and accounting implications. Which is the optimum vehicle to use to maximise value for both parties?
Is the price right?
Businesses can be valued by price/earnings multiples, Net Asset Value and/or by means of a Discounted Cash Flow – which is most applicable to your business? What is the market related value i.e. how much will a potential buyer be prepared to pay?
Structure the deal effectively
Business sellers must fully understand the deal structure and its implications, as well as any earnings warranties or other guarantees.
What about the buyer?
The buyer should be a good strategic and cultural fit to ensure synergies are maximised. In most cases the seller will stay on for a period of time and so needs to get along with the new owners in terms of goals, objectives, ethics and values.
Signed and sealed, but not delivered – yet
Timing the sale of your business in terms of your own personal life cycle is critical. Sellers must take into consideration that a buyer may want them to stay on in the business for up to two years after the sale and would want them to continue to be energetic and engaged in the business. Strong advice is not to procrastinate starting the sale process for too long as the sale of a business can take time.
New adds, “Horizon Capital provides a full turnkey solution for the seller from the initial preparation of the business to the facilitation of the purchase payment. The service commences with Horizon Capital attaining an understanding of your business as well as the owners personal objectives; it assists in preparing the business for sale, wholly or partially; undertakes a valuation of the business; prepares a comprehensive Information Memorandum and approaches potential buyers in a discreet and selective manner; identifies the optimal deal structure and negotiates a ‘fair’ price; thereafter overseeing the preparation of the Sale Agreement and supporting documentation.”
All transactions with potential buyers are governed by confidentiality agreements to protect the interests of all parties.