30 business focus
They’re buying – but do you know how to sell?
Mergers and acquisitions activity is strong across the region, with acquirers actively seeking growing businesses. But would you know how to react if someone made an offer to buy your business? Steve Anstey of BCMS has some specialist advice
With continued low interest rates and strong levels of cash on the balance sheet, acquisition continues to be one of the best routes for growth for many organisations. At BCMS, a specialist M&A adviser HQ’d in Kingsclere, deal volume was up 26% in 2015 across our organisations worldwide.
Many acquirers are operating clear acquisition strategies, some are buying multiple companies. As repeat acquirers, they are obviously experienced in the process of buying a business. But deal-making can be much more challenging for their 'target' companies, who may never have sold a business before.
At BCMS, we’re noticing a trend in the number of clients who are actively approached by potential acquirers – and these 'offers' come in all shapes and sizes. We have had clients come with a verbal offer from someone they have known for years. In other cases the offer on the table can be extremely detailed, including technical documents such as heads of terms. But the one consistent fact is that offers at this stage are non-binding. They are clearly not based on key financial data including growth projections or adjusted profit figures. They are also not tested against offers made by other acquiring parties.
We often hear that business owners are approached in an informal environment – maybe at an event, or in a social setting. This may seem a ‘safe’ forum for discussion, but inexperienced owners, flattered by the interest, can inadvertently reveal commercially sensitive information without a non-disclosure agreement
in place. In negotiations, the flow of information needs to be controlled. Until you do sell, this information belongs to you and you need to assert control over how it can be used by interested parties.
Understanding acquisition strategies
If an acquirer makes an approach for your business, it may say little more than the fact your business fits the profile of the kind of business they are targeting. Acquirers may be running a wide-ranging acquisition strategy campaign, and are experts at ‘de-risking’ that strategy. It’s very unlikely they will be talking to one target only. Equally, many acquirers use a third-party adviser to make their approach, rather than directly as MD to MD.
Understandably, inexperienced business owners can quickly enter into detailed dialogue about selling their business. For an acquirer, having exclusive conversations means they can dictate terms and conditions, and consequently price.
There are serial acquirers out there who make offers simply based on a mathematical formula, which will determine how they value particular target businesses.
I remember speaking to a senior figure at one major financial services business. This company was in expansion phase and making serial acquisitions of smaller firms. They had an 'x multiplied by y = z' formula that dictated precisely the amount they would pay. They transacted quickly, but the seller definitely sold
for less than the maximum price. It’s the reason why BCMS has never sold a business to this acquirer.
How can we increase value?
Firstly, we need to understand the buyer’s true motives, and therefore how much your business is worth to them. With a speculative approach, an acquirer’s commitment has never been tested in the heat of competition. In deal-making, having two or more serious parties is critical. Unless you have competition you will never get an acquirer to reflect the true value of your business in their offer.
An adviser is key here. Sometimes, business owners feel uncomfortable about seeking advice, because they think it might offend their buyer. But the acquirer will typically be well advised, and the seller should follow suit.
It can actually be advantageous for an acquirer when the target is well advised. Following a speculative offer, when an acquirer ‘lifts the lid’ on a business they may discover some issues that can materially affect saleability. This means they have wasted resource in profiling targets that ultimately, they do not wish to acquire.
If a seller engages an adviser, however, it shows intent and seriousness about selling the business. Using an adviser will also mean that a seller and their business is better prepared for the challenges and demands selling a business entails.
The single most important thing is to have a range of buyers at the deal table. This is the only way you will ever truly discover what your business is worth. What’s more, competition can positively influence terms, business fit, the speed of the deal, and the price.
And finally: accepting the first and only offer can be a very expensive decision. The difference could be millions of pounds left on the table.
To find out more visit the website. Details:
www.bcms.co.uk
www.businessmag.co.uk
THE BUSINESS MAGAZINE – THAMES VALLEY – APRIL 2016
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