An overview by Empower Capital
Author: Philip Haslam
Have you ever considered selling your business? Perhaps you’re considering retiring but aren’t sure how to manage the succession plan. Whatever your reason, when someone has run their business successfully, a time usually comes when they want to exit. A great succession plan is important in this process. One possible option for you is to sell your business to another party, or bring in a strategic investor to complement your business.
Selling a business takes time and is usually a lot more complex than you may initially think– there are several balls you need to juggle to complete a deal properly and to get the best terms possible for yourself, your staff and your successor.
Empower Capital help people sell their businesses, doing the hard work to get the best deal in all respects. It takes great planning and execution to complete a deal well.
The first and the most difficult step in selling your business is deciding to sell. Maybe you have pondered the idea over the last few years – but making the step forward to sell the business can be a vulnerable moment. The basic question to ask is, “why do you want to sell?” This goes to the heart of the matter but includes things such as:
- Do you want to sell all or part of your shares?
- Are you willing to stay with the business for a period of time?
- What voting control provisions are important for you?
- How important is it for you that the staff and processes in the business remain the same?
- Are there key suppliers, customers or staff that you would want to include in the sale process?
- Are you ready to change roles in your company?
- Are you looking for a B-BBEE shareholder?
Once you’ve decided to sell, you’ll need to establish an anticipated timeline. Depending on various factors, a sale of business can take between 4 and 8 months to complete. Before you start, you’ll need to prepare your business for the sale process which would include accounting and tax factors, transaction information documents, formalising key internal processes, reviewing agreements, and other factors.
Empower Capital would also work with you to establish an anticipated value of the business based on a formal valuation.
Once the business is ‘sale-ready’, your corporate advisor would prepare with you an approach list of potential purchasers. The approach list would include target investors from across the spectrum, including institutional investors, industry buyers, multinational investors, suppliers/customers, management, and wealthy individuals.
This would lead to the next step of approaching the target buyers, and obtaining offers from them. There are two negotiation strategies – one could either proceed to a direct negotiation with a potential buyer or run a competitive bid process where buyers would need to bid against each other for your business. The first approach is much more relational and helps you structure a deal that works for all parties – but it may not obtain the highest value. The second approach may help you get more for the company but has a few additional risks – it typically becomes a public process, is more rigid and inflexible and often potential buyers are put off by the competitive bid scenario.
These are options to discuss with you to ultimately decide on the best possible strategy that fits in with your values and needs.
Example of a 100% sale of a company to an industry buyer.
Fleetcall has a national radio network in South Africa and has appropriate licences which would enable a corporate buyer to access that market. The shareholders decided they were ready to sell and the company entered discussions with Allied Electronics Limited, a listed technologies company, looking to acquire the shares. The parties negotiated directly between each other which enabled a relational approach to the transaction. The Fleetcall shareholders were willing to provide profit warranties which allowed the company to obtain a higher sale price. The shareholders remained with the company for two years to ensure that the profit warranties were obtained. The sale process provided a cash out payment to shareholders and the continued expansion and development of the company.
Once offers have been obtained, the next step would be to negotiate a term-sheet which would summarise the key terms of the sale. This will be used as the basis for a due diligence and obtaining any tax advice, if necessary. The lawyers would then use the term-sheet to prepare full agreements for signature between the parties. There will be a few conditions to fulfil following signature, including potentially regulatory approvals and developing a combined media release to inform the market and various stakeholders.
Throughout this process, our goal is to make this process as relational for you as possible – Empower Capital would work alongside you to help you in one of the most vulnerable exercises you will do. Business owners are typically great at solving problems and pioneering business solutions. Don ’t be fooled though. If you want to sell your own business, it will take a lot more time than you think and you expose yourself to risks if this is not your area of expertise.
The bottom line here is this. Your business is your baby. When you sell, get the best advice you possibly can. It is definitely worth it.
Empower Capital provide corporate finance advisory services to business owners looking to sell their business, introduce a B-BBEE shareholder or raise capital. For more information or to book an appointment, go to www.empowercapital.co.za.