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I'm a stakeholder presentation - 23.11.10

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I'm a stakeholder... get me out of here! …

I'm a stakeholder... get me out of here!

Venue: Stratton House Hotel, Cirencester
Date: 23rd November 2010

Presented by:
Stewart Barnes - Business LInk
Will Abbott - Randall & Payne
Peter Mardon - Witerbotham Smith Penley LLP
Chris Brill

Published in: Business

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  • 1. I’m a stakeholder… get me out of here! Tuesday 23rd November 2010 Stratton House Hotel, Cirencester
  • 2. Stewart Barnes Strategic Development Team Business Link I’m a Stakeholder… …Get me out of here or I want to be a Shareholder… …Let me in there
  • 3. Personal Background • Stewart Barnes – 10 years with £100m Hansen Group (third generation, privately owned) – Overall responsibility for the group with 14 business units in 6 countries employing 1000 people. – Business Unit MD at 31, Main Board Director at 34; joint-CEO at 37. – Bought businesses in Sweden (2); Denmark, Poland, UK – Sold companies in Denmark (MBO, MBI) and UK (MBO) – 10 years with Pilkington in sales & marketing management – Strategic Development Team assisting regional businesses to grow and develop.
  • 4. Personal Learning • Structuring a business to run it is different from structuring a business to sell it • Prepare 3 – 5 years in advance to get best value (‘grooming’ though a high - performing business should be doing the following anyway) – Grow turnover and profits over the period – Sell property and lease it back: sort lease – Write a business plan (clarity) and update it annually – Hit budgets, forecasts will be more believable – Build a management team (it is not about you) – Clear roles and responsibilities and contracts of employment – Improve processes: ISO 9001, 14001, IIP, EFQM
  • 5. Personal Learning • The deal always takes longer than you think (minimum 6 months)… • …and you have to run the business as well. • Get advice from accountant/auditor - construct the balance sheet • Involve your solicitor (specialist) • Manage the advisors – do not let them manage you! • Understand the terminology – HoTs; SPA; due diligence; warranties; deferred consideration; information memorandum
  • 6. Valuation • Be realistic (when you are selling) • Can buy businesses very cheaply especially if the target is cash poor or in distress • Rules of thumb: – Buy at four to five times earnings (PBT) – Sell at greater than eight times earnings (PBT) – Many aim for seven times earnings (PBT) which is on high side – depending on sector can be between 5.5 to 8. • Other indicators: – Sales factor can range from 0.4 to 0.6 of total sales – EBIT factor can range from 5 to 7 – EBITDA factor can range from 4.5 to 6.5
  • 7. Opportunity Knocks • You may not be planning to sell, someone may come knocking – maximise sales value by having a plan rather than a knee jerk sale • Management team may be the buyers – beware of releasing the Genie from the bottle; minimal warranties • Some “cheap” businesses may come available as companies run out of cash • “What do I need to do now to help me?”
  • 8. Business Link Many levels of assistance • General Bulletins – Business i • Seminars, Events, Workshops • Business Advisers • Specialist Advisers – Finance, Innovation, Marketing • Strategic Development Team Call 0845 600 9966 www.businesslink.gov.uk/southwest
  • 9. Selling the Business Will Abbott LLB FCA Partner Randall & Payne LLP
  • 10. Introduction • Valuations • Strategies • Tax
  • 11. Valuations • Multiple of future sustainable earnings • Maximise the multiple (10+?)
  • 12. Valuations • Start with historic profit • Adjust for unusual items – Director remuneration – One off contract
  • 13. Valuations • PCPI average 10.7 (11.7) times historic profit – Mean deal size £13m • UK200 SME index P/E 6.8 – Mean deal size £2.65m
  • 14. Valuations • Accountants usually apply 3-8 times – Often for tax purposes • Debt free / cash free basis • How do you get a higher multiple?
  • 15. Strategies • Start process 3-5 years ahead • Identify Issues and an action plan – People; Processes; Customers; Products – Find the right advisors (solicitor/accountant) – Get the skeletons out and sorted • Legal agreements, employment contracts • Audited accounts?
  • 16. Strategies • Identify what are you selling – Customer list – Product/service – Personnel skills – Knowledge/know how – Geographic presence – What is your SCA?
  • 17. Strategies • Financial plan – Prepare budgets and meet them – Projections; • What could market share be with buyer’s resources? • Good profit & growth history • 5 x future profit = 10 x historic?
  • 18. Strategies • Build Confidence – Business is worth what a buyer will pay – Confidence in your own business – Instil that confidence in them – Be prepared to stay on – SELL the business – Too many issues and deal is dead
  • 19. Strategies • Find a strategic buyer – Plc or private equity group - P/e ratios 15+, – buying 5-8 times = immediate S/H value • Set up an auction – Need 2 and more interested parties – Use a selling agent
  • 20. The New Tax Regime • Entrepreneurs’ Relief – Lifetime allowance £5m gains at 10% (x2?) – Individual allowance – Must be claimed – Business owned for 12 months – Not business property unless – Sold within 3 years of associated disposal & – No rent paid
  • 21. Company Shares • Trading company • 5% of the shares & 5% of voting rights • Officer or employee – Officer = director or secretary • No substantial non trading activities
  • 22. Property • ER if owned by Co & shares sold • But buyer may not want the property • Use of SIPP or SSAS • EFRBS
  • 23. Summary • Develop a clear 3-5 year plan • Sell on future profits • 10% CGT v 40%/50% IT on surplus cash • Think about property issues CAN’T SELL or WON’T SELL?
  • 24. I’m a stakeholder… …get me out of here! Peter Mardon Managing Partner AES Winterbothams LLP
  • 25. Non-disclosure Agreement • Confidentiality undertakings • Exclusivity (lock out) • Costs indemnity • Enforceability • Limited disclosure
  • 26. Heads of Terms • Price • Payment terms • Deferred Consideration • Earn-outs • Taxation • Ongoing involvement (terms of service agreement/consultancy • Net asset adjustment
  • 27. Due Diligence • Paper trail (warranties and disclosures) • The right impression • Employment contracts (especially key employees) • Terms of business • Agreements with main suppliers/customers • Property (lease terms, asbestos reports) • Licences, etc. (e.g. Data Protection Act)
  • 28. Share Purchase Agreement (SPA) • Operative parts • Warranties • Indemnities • Completion accounts • Restrictive covenants • The Tax Deed (or tax covenant)
  • 29. What to do Now • Service Agreements for you and key staff with restrictive covenants • Tax planning, e.g. transferring some shares to your spouse, children, etc. • Terms of business and contracts with main suppliers/customers • Lease • Tidy up statutory books and records at Companies House
  • 30. 3030 Agenda Talk about my experience of building and selling a Company The factors that I found important Answer any questions
  • 31. 3131 In the beginning Start up Survival Growth – New challenges – Excitement – Success – Rewards Sale?
  • 32. 3232 What Changes? Professional Personal Market opportunity Mixture of above
  • 33. 3333 My Own Experience AudioSoft – I founded in 1995 – Grew very rapidly – Won D&T award for fastest growing Co in SW in 2000 – Over expanded – Back on growth at 20% per annum – Co always profitable Sold to Ultra Electronics in August 2008 – Met objectives of sale – Still with the Company – I have a boss!
  • 34. 3434 The thought stage Reasons for sale? – Approach – Co’s growth starting to slow – Reached the point of inflexion – Consolidation – Didn’t want to be working my backside off with a smaller business Summer holiday 2004 – 5 point plan – Covered items like customers, IP, dependency on me, future revenue streams etc – Big question – Did I really want to sell?
  • 35. 3535 The chew on it stage If I did sell what do I want to do? – Lie on a beach dreaming of selling business? – New startup? – Personal lifestyle issues How would it effect employees? – Loyalty – Future The deep hard question - Do I really want to sell?
  • 36. 3636 Research Stage My own research – Various valuations etc – Other Companies in similar industries How would I sell the Co? – Seminar – What effect on my time – I am running the business!
  • 37. 3737 Action Stage Worked with Randall & Payne – Full audit – Advice – Knowledge and experience from a trusted source Appointed a Company which specialises in selling Companies – Not accountants – Not solicitors – Not a friend of a friend – Sell your Company like you sell your product
  • 38. 3838 Action Stage Appointed BCMS summer holiday 2007! Their process – 6 months – Generation of Information Memorandum – 250+ prospective Co’s – Letters sent out – Meetings – Offers – Create a market
  • 39. 3939 Accountants and Lawyers! Right fit with the business – D&T? Why Randall and Payne – They know our business. – Size & resource – Relationship – dealing with a Partner – Response – Sat, Sun afternoon, on holiday. Why is this important? – It’s a new experience – Still running the business – hence likely to be outside normal office hours
  • 40. 4040 Legal Advice Two options; – BCMS recommendation – Accountant recommendation Why AES Winterbothams? – Size – Dealing with a Partner – Importance to them – Close relationship with Randall & Payne – Personal previous experience
  • 41. 4141 The right team – why it is important Still running the business – How many hours are there in the day? New experience for the vendor – Acquirer may be doing this all the time One thing I can guarantee – There will be problems – Heads of Agreement meeting Reassurance for the buyer – Post acquisition comments – Our acquirers were very complementary about the team
  • 42. 4242 Summary Plan to make the Co fit for sale – timing is vital Sale process – remember you must still run the business Professional advisors – engage early and get a team that is right for you. Valuation – be realistic. There will always be an expectation gap. Keep something on the table for the acquiring Co
  • 43. Question & Answers
  • 44. Thank you

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