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Mergers and Acquisitions - a sellers’ guide for SMEs

Written by: Phil Shipperlee

Article Overview: Selling a company is an exciting, challenging and rewarding task; the culmination of the even greater challenge of preparing a company for sale, so that the maximum asset value can be realised. To help you rise to that challenge this article looks at the reasons to sell, the different approaches to selling, how to go about finding a buyer and some of the main issues you need to consider.

Mergers and Acquisitions - a sellers’ guide for SMEs

It could well be that a trade sale or MBI would be the best option as it would give you a fair price while protecting the employees by ensuring they remain in jobs in a business that will continue to be run well. Also, if you receive the price you want, you could share some of your gain with the key staff who helped you to build the company. By the way, preparing in advance to share your gain through, for example, the creation of a share option scheme would be a sensible move to make.

The other key factor to consider is what you want to do post-sale. If you want or are happy to stay in the business after it is sold, you will have a greater range of options available to you. In some cases, such as a floatation, you will almost certainly be required to stay for a period of time. If the deal does involve you in staying with the business for a while, you will probably be required to accept an earn-out, where part of the sale consideration is held back and paid to you over time against the achievement of agreed targets and milestones. Earn outs can be risky and are a whole topic in their own right – just be careful not accept too much commitment.

Finding a buyer

If your chosen method is floatation, you will need to employ the professionals who will plan and organise the process for you – you have no choice. In this case, the buyer is all those people and institutional investors who believe in your company and want to buy a part of it.

In all other examples mentioned above, finding a buyer is about knowing where to look. For the MBO, it is easy, it is your current staff. In the case of a trade sale or MBI, the buyer is often known to you in the business community where you operate. In fact, they may approach you, rather than you having to look for them. The disadvantage with this apparent convenient and comfortable situation is that you are looking at a very limited list of options and as a result may not be getting the best deal. My advice would be to employ a professional M&A company who know your sector and who will be able to offer you a range of buyers. By creating a competitive situation, you will ensure you get the best price and overall deal.

In Summary:

* Many of the sell and buy issues will be mirror images of one another, so it may be worth reviewing last month’s buyers’ guide.

* A decision to sell should not be a knee jerk reaction to a tactical matter – if it is you will probably get only a fraction of the real value of the business.

* The essence of any deal is the word “fair”. There cannot be a deal without a willing seller and a willing buyer.

* They will want to do due diligence – make sure your business is clean and ready for this.

* Know what you want from the deal; money, shares, a job, to leave immediately after the sale, and ensure you get what you want.

* Following on from the previous point, think carefully about accepting any earn out.


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