THERE IS NO doubt that Brexit is having an impact on company transactions, with mid-market mergers-and-acquisition activity in Ireland reduced in both the volume and value of deals.
We have seen evidence of strategic acquirers, in particular, delaying transactions, which may in part be to allow the dust to settle. We have, however, also seen evidence of European and US investors looking at this as an opportunity.
In general, the process of selling a business has become more complex as globalisation increases. Companies fall in and out of favour at a more rapid pace. However, the pool of potential buyers has also grown significantly due to strategic foreign investment and private equity.
Because of a lack of familiarity with the sale process and available opportunities, owners may end up selling their company rapidly at a lower-than-optimal price. To successfully optimize business value and choose the right buyer, business owners must be strategic and plan a process of transition.
Shareholders often delay planning an exit because the business is doing well. However, a high point in earnings is the exact time to start thinking about the prospect of selling.
A key to increasing value is to understand how a potential investor views the business. Owners may view the value of their business at a higher value than the market does.
It’s important for business owners to seek advice from an independent advisor who can help provide a perspective on the perception of your business and ultimately increase your business’s value and sale price. Once you understand the current value of the business, you can identify tactics to increase that value.
Key drivers of value in a business may include:
- Sales growth trends
- Product and service margins that compare favourably to the wider industry
- Balanced and growing customer mix
- Strength of market niche
- Efficient, or lean, working environment
- Up-to-date systems, processes and operating tools
- Improving profitability and earnings
These are among the areas to focus on:
- Knowing the true market value of your business long before you put your company up for sale
- Knowing industry-specific information about business transactions by gathering detailed information about comparable sales among your industry peers
- Identifying key business value drivers that can be improved to increase the ultimate sale price
- Meeting with your leadership team and key stakeholders periodically to discuss progress and additional opportunities
- Improving profits by evaluating areas where costs can be cut and the business made more efficient
- Carefully monitoring financial metrics, such as revenue and gross profit margin, to make better business decisions
- Optimising procurement. Cost savings and, therefore, increased value can be realised by evaluating your sourcing partners and contracts
- Ensuring that all stakeholders, such as other owners or managers, share the same strategy when pursuing a sale
- Presenting facts and projections to provide reasoning for the sale price you seek
- Increasing the likelihood of successfully completing a sale by addressing issues before you find a buyer through the process of vendor due diligence
Customers and culture
Company culture and existing customer relationships are also two critical areas where you can add business value that are often overlooked.
If a business is sold, it is important to ensure that employees will accept and embrace the culture of the buyer. The buyer will want to maintain or boost morale by positioning the sale as a positive and a new opportunity for employees.
The buyer will also want to increase the likelihood of customers continuing their relationships through a transition. Employees and customers can perceive change negatively, but if your business is performing at a high level, it is unlikely that a new owner will make significant changes.
Both of these concerns can be assisted by the seller staying on as an employee for a period of time. Continued owner involvement and development of a strong management team has become even more important as performance stipulations tied to profits and revenue are frequently included in the purchase contract.
If you are considering selling your company, the time to act is now. It’s critical that you allow sufficient time to prepare for a transaction to correct any issues and build incremental value in your business.
Julian Caplin is a corporate finance partner at business advisory firm RSM Ireland.
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