It is worth reviewing the types of buyers in the market today These can be split into three Firstly we have the financial buyers who are looking to make an investment and purely get a return on investment without participating in the management of the company - I also include in this category the partial flotation of the company through an IPO and an MBI team because they themselves are often backed by venture capitalists - this class a buyer usually pays the least Then we have trade buyers who have inside knowledge and specific reasons for making acquisition - it is often possible to get a better price from trade buyers rather than a financial investor And finally we have the consolidators or platform builders who often pay premium prices because they are short on time and have specific reasons for growing the business to a particular size
Tax review Ensure all PAYE, VAT and Corporate Tax matters are up to date Ensure that tax allowances, are maximised Tax losses, previously ignored, may now have a value Any reorganisation of assets needs to be done in a tax-efficient manner - sometimes, this can take some time and be expensive secure or formalise contracts important contracts, both with customers, suppliers and family members, may not have been recorded properly, eg loans from family members, who holds the shares or share options Legal review This could be carried out in conjunction with legal advisors but should at a minimum consider the following: – the City Code of Takeovers and Mergers can sometimes apply even for ‘Plcs’ which are privately held – all leases are located and reviewed – trading contracts are examined to ensure that no change of control prohibition applies – trade marks and patents are properly filed and up to date – agency agreements are renewed, particularly in the light of recent European legislation, to determine the cost of cancellation – any current shareholder agreements – Companies House filing and the Memorandum and Articles of Association are up to date, as are Board Minutes and other statutory documents. Ownership review Where a business is owned by more than one individual, all the owners need to be consulted at an early stage to ascertain: – their price expectations – their ability to give warranties and indemnities – their availability at completion time, or willingness to give power of attorney – their acceptance of an earn-out and payment in shares or other non cash consideration – an understanding of the confidentiality required. Tax planning review – sale of assets or shares? – availability of roll-over relief, hold-over relief and retirement relief? – dividends prior to sale? – availability of tax losses for future purchaser? – possibility of a top-up of the proprietor’s pension fund? Skeletons the key client about to be lost the disgruntled dismissed employee litigation environmental risks lack of ownership of key assets Address early on - always assume the buyer’s due diligence will find them
Maximise the Value This is not only in terms of the £ value paid up front Some of the price paid can be deferred and the mix between upfront and deferred can sometimes be improved due to grooming It can limit the clawbacks by reducing the uncertainty in the financial performance of the business. It can limit the level of clawbacks via the indemnities and warranties Emotional Needs These can be satisfied Staff loyalty can be repaid Perhaps the ego of the vendor can be massaged They take the chairman's role, or the ongoing name of the firm is established Confidentiality During grooming which is ongoing through before and out of the sale process confidentiality must be a priority This ensures there are no distractions for the business Staff/customers/suppliers P/E Is used for illustrative purposes AIM To improve qualitative and qualitative measures that all will influence how a buyer values the business
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