The Sunbelt Business Brokers® guide to Selling a Small or Medium sized Business in Ireland

THE IRISH SME MARKET

The Irish SME Market There are 250,000 SME’s in Ireland.* * (Small Business Forum Report 2006)

There are 250,000

SME’s in Ireland.*

The Irish SME Market When the time comes to exit there are only three options Pass on to an heir Close the business Sell the business

When the time comes to exit there are only three options

Pass on to an heir

Close the business

Sell the business

The Irish SME Market Fewer businesses are being passed down to the next generation.

Fewer businesses

are being passed down to the

next generation.

The Irish SME Market Owners increasingly want to extract the pension value locked up in their business by maximising the selling price.

Owners increasingly want to extract the pension value locked up in their business by maximising the

selling price.

SME Value Drivers Sellers Discretionary Earnings (SDE) or Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) are the main valuation drivers in most SME businesses.

Sellers Discretionary Earnings

(SDE)

or

Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA)

are the main valuation drivers

in most SME businesses.

SME Value Drivers SDE = Operating profit before tax + market salary for one owner + non cash expenses + non recurring once off expenses + non business related expenses paid for by the business + interest paid. EBITDA = Operating profit before tax + interest paid + depreciation + amortisation.

SDE = Operating profit before tax + market salary for one owner + non cash expenses + non recurring once off expenses + non business related expenses paid for by the business + interest paid.

EBITDA = Operating profit before tax + interest paid + depreciation + amortisation.

SME Value Drivers Every business owner who plans to sell their business should try to increase maintainable SDE / EBITDA.

Every business owner

who plans to sell their business

should try to increase

maintainable

SDE / EBITDA.

WHAT ARE BUYERS LOOKING FOR?

What are buyers looking for? Minimum of 3 years financial statements Solid / growing revenue and SDE / EBITDA Consistent financial performance 1 2 3 4 5 6

Minimum of 3 years financial statements

Solid / growing revenue and SDE / EBITDA

What are buyers looking for? 1 2 3 4 5 6 Management independent of ownership

What are buyers looking for? Skilled / experienced employees 1 2 3 4 5 6

What are buyers looking for? Well diversified customer base 1 2 3 4 5 6

What are buyers looking for? Key supplier relationships/agreements 1 2 3 4 5 6

What are buyers looking for? Businesses with growth opportunities 1 2 3 4 5 6

What are buyers looking for? These influence what SDE/EBITDA multiple a buyer will pay.

What are buyers looking for? 90% of all SME’s sold have some element of earn out or deferred payment.

ACTIONS TO MAXIMISE EXIT VALUE

Actions to Maximise Exit Value Focus on growing sustainable cashflow. Buyers buy future not past cashflow. Eliminate all unnecessary costs and discretionary spending in the business. Sell off unproductive assets and extract excess cash prior to selling the business.

Focus on growing sustainable cashflow. Buyers buy future not past cashflow.

Eliminate all unnecessary costs and discretionary spending in the business.

Sell off unproductive assets and extract excess cash prior to selling the business.

Actions to Maximise Exit Value Groom competent staff. Businesses which ARE the owner are extremely difficult to sell . Remove internal and external risks to the business . Customer concentration Product or Supplier concentration Key man issues

Groom competent staff. Businesses which ARE the owner are extremely difficult to sell .

Remove internal and external risks to the business .

Customer concentration

Product or Supplier concentration

Key man issues

Actions to Maximise Exit Value Maintain good financial records A minimum of three years annual accounts and up to date management accounts are essential to prove the financial performance of the business.

Maintain good financial records A minimum of three years annual accounts and up to date management accounts are essential to prove the financial performance of the business.

Actions to Maximise Exit Value Talk to your advisors early in the process. Professional tax planning, legal preparation and wealth management advice can maximise your after tax proceeds. This is a marathon not a sprint. Business sales typically take between six and nine months from the initial valuation through to contract completion.

Talk to your advisors early in the process. Professional tax planning, legal preparation and wealth management advice can maximise your after tax proceeds.

This is a marathon not a sprint. Business sales typically take between six and nine months from the initial valuation through to contract completion.

Actions to Maximise Exit Value Due diligence is coming. Prepare now. Speedy and complete responses to information requests convey transparency and confidence to the buyer.

Actions to Maximise Exit Value Be flexible in relation earn outs or deferred payments. 90% of all business sales involve some element of deferred payment. Don’t expect all cash on completion of the sale and do expect to compromise – rarely does a sale meet all of the seller’s and buyer’s objectives.

Be flexible in relation earn outs or deferred payments. 90% of all business sales involve some element of deferred payment. Don’t expect all cash on completion of the sale and do expect to compromise – rarely does a sale meet all of the seller’s and buyer’s objectives.

Price the business so that it actually sells. Many SME’s available for sale fail to sell and one of the key reasons is pricing. If you price your business to match what the market will actually pay then you significantly increase the probability successfully selling your business. Valuation Guidelines

Price the business so that it actually sells. Many SME’s available for sale fail to sell and one of the key reasons is pricing. If you price your business to match what the market will actually pay then you significantly increase the probability successfully selling your business.

VALUATION GUIDELINES

Valuation Guidelines Rules of Thumb are NOT to be relied on. The best rules of thumb are a rough ball park starting point, the worst can be baseless and very misleading.

Valuation Guidelines Buyers buy future not past profits.

Valuation Guidelines An SME business must provide the new owner with a market salary & enough excess cashflow to pay for the business in 3–5 years. Businesses with asking prices which don’t meet these 2 key criteria are unlikely to sell

VALUATION & TERMS REALITY CHECK

Valuation Terms – Reality Check Individual buyers will have limited funds to invest. 20 - 40% of the selling price is common.

Individual buyers

will have limited funds to invest.

20 - 40% of the selling price is common.

Valuation Terms – Reality Check Don’t expect the bank to finance the buyer unless the business has significant tangible assets which can be used as collateral.

Don’t expect the bank to finance the buyer unless the business has significant tangible assets which can be used as collateral.

Valuation Terms – Reality Check Sale structures of 33/33/33 where the buyer invests 33% of the selling price (normally everything they have), the bank finances 33% and the seller finances 33% via deferred payments over X months or years subordinate to the bank are common.

Sale structures of 33/33/33 where the buyer invests 33% of the selling price (normally everything they have), the bank finances 33% and the seller finances 33% via deferred payments over X months or years subordinate to the bank are common.

Valuation Terms – Reality Check All cash on completion is very rare.

All cash

on completion

is very rare.

The true market value of a business can only be established through a combination of comprehensive marketing and competitive bidding. Valuation Terms – Reality Check

The true market value of a business can only be established through a combination of

comprehensive marketing and competitive bidding.

WHY SHOULD THE SELLER FINANCE THE BUYER ?

Why Should the Seller Finance the Buyer? It will result in a higher selling price for the business than an all cash price. Typically 25% higher. (Source: Toby Tatum’s book “Transaction Patterns”) It demonstrates the seller’s confidence in the future viability of the business.

It will result in a higher selling price for the business than an all cash price. Typically 25% higher. (Source: Toby Tatum’s book “Transaction Patterns”)

It demonstrates the seller’s confidence in the future viability of the business.

Why Should the Seller Finance the Buyer? When the seller has a vested interest in the future success of the business it gives enormous comfort to the buyer. It gives comfort to the bank. If the person who knows the most about the business isn’t prepared to provide some funding, why should they?

When the seller has a vested interest in the future success of the business it gives enormous comfort to the buyer.

It gives comfort to the bank. If the person who knows the most about the business isn’t prepared to provide some funding, why should they?

COMMON PROBLEMS

Common Problems Overvaluing Goodwill “ Goodwill is nothing more than the probability that the old customers will resort to the old place even though the old owner has gone” Cruttwell-v-Lye 1810

Overvaluing Goodwill

“ Goodwill is nothing more than the probability that the old customers will resort to the old place even though the old owner has gone” Cruttwell-v-Lye 1810

Common Problems Overvaluing Potential Hypothetical and unproven Why was it not exploited before this? Buyers rarely pay a premium for something they have to make happen themselves.

Overvaluing Potential

Hypothetical and unproven

Why was it not exploited before this?

Buyers rarely pay a premium for something they have to make happen themselves.

HOW TO SECURE PREMIUM EXIT VALUE

How to Secure a Premium Exit Value Find a premium buyer by finding all buyers: Individuals (owner managers) Strategic Buyers Financial Buyers International Buyers Understand each buyer’s motivation

Find a premium buyer by finding all buyers:

Individuals (owner managers)

Strategic Buyers

Financial Buyers

International Buyers

Understand each buyer’s motivation

How to Secure a Premium Exit Value Negotiate with several parties Be flexible in relation to deal structure Be prepared to wait. It can take up to a year to find the best buyer. Engineer competitive bids.

Negotiate with several parties

Be flexible in relation to deal structure

Be prepared to wait. It can take up to a year to find the best buyer.

Engineer competitive bids.

HOW LONG DOES IT TAKE TO SELL?

What can Sunbelt Business Brokers do?

Sunbelt Business Brokers Our job is to confidentially sell your business for the maximum amount, in the shortest possible timeframe.

Type of Businesses Sunbelt Sell Owner/family managed Over 3 years in operation Turnover between €200,000 and €10m Between 2 and 50 employees Market valuation of €100k to €8m Owner is committed to the sale of the business & has realistic expectations in terms of value and sale structure

Owner/family managed

Over 3 years in operation

Turnover between €200,000 and €10m

Between 2 and 50 employees

Market valuation of €100k to €8m

Owner is committed to the sale of the business & has realistic expectations in terms of value and sale structure

The Sunbelt Five Step Sale Process Analyse and understand the business Identify the “Most Probable Selling Price” using a range of valuation methodologies such as: Multiple of maintainable profit Repayment capacity of the business Market value of assets employed Comparative deal data 1 2 3 4 5 *(from a database of over 30,000 previous business sales)

Analyse and understand the business

Identify the “Most Probable Selling Price” using a range of valuation methodologies such as:

Multiple of maintainable profit

Repayment capacity of the business

Market value of assets employed

Comparative deal data

The Sunbelt Five Step Sale Process Prepare a Blind Business Summary One page teaser document Highlights key attributes of the business Does not identify the business name or location Prepare a Confidential Business Profile Detailed overview of the business Includes financial and operating information Includes strengths, weaknesses, opportunities and threats facing the business – no surprises later Only issued to buyers we feel are serious and have signed a confidentiality agreement 1 2 3 4 5

Prepare a Blind Business Summary

One page teaser document

Highlights key attributes of the business

Does not identify the business name or location

Prepare a Confidential Business Profile

Detailed overview of the business

Includes financial and operating information

Includes strengths, weaknesses, opportunities and threats facing the business – no surprises later

Only issued to buyers we feel are serious and have signed a confidentiality agreement

The Sunbelt Five Step Sale Process Implement a marketing plan specific to your business which may include:- Advertising the business To over 1,500 registered buyers on our national database In the national press In regional or trade publications On specialist business for sale marketplaces Directly contacting strategic and financial buyers both nationally and internationally Internal marketing via Sunbelts network of 300 international offices. Co-operating with corporate finance specialists and other professionals to identify possible buyers. 1 2 3 4 5 Note: We never disclose the name or location of the business in our marketing activities.

Implement a marketing plan specific to your business which may include:-

Advertising the business

To over 1,500 registered buyers on our national database

In the national press

In regional or trade publications

On specialist business for sale marketplaces

Directly contacting strategic and financial buyers both nationally and internationally

Internal marketing via Sunbelts network of 300 international offices.

Co-operating with corporate finance specialists and other professionals to identify possible buyers.

The Sunbelt Five Step Sale Process We screen and qualify potential buyers to establish their background and level of interest to get details of their financial ability to purchase to secure a binding confidentiality agreement When we are satisfied of the buyers bone fide intent we present the Confidential Business Profile to them We then facilitate meetings between the business owner and buyers who want to progress their interest further 1 2 3 4 5

We screen and qualify potential buyers

to establish their background and level of interest

to get details of their financial ability to purchase

to secure a binding confidentiality agreement

When we are satisfied of the buyers bone fide intent we present the Confidential Business Profile to them

We then facilitate meetings between the business owner and buyers who want to progress their interest further

The Sunbelt Five Step Sale Process Once a buyer has reviewed the Confidential Business Profile and met with the business owner we encourage the buyer to make an outline offer, subject to contract and satisfactory due diligence We manage the offer/counter offer process We get the key terms agreed in principle We iron out issues during due diligence We get the sale over the finishing line 1 2 3 4 5

Once a buyer has reviewed the Confidential Business Profile and met with the business owner we encourage the buyer to make an outline offer, subject to contract and satisfactory due diligence

We manage the offer/counter offer process

We get the key terms agreed in principle

We iron out issues during due diligence

We get the sale over the finishing line

Proven Process which MAXIMISES selling price Accept the best offer and complete the sale Screen enquiries & manage negotiations Confidentially market the business Prepare key documents 1. A one page ‘blind’ teaser 2. A Confidential Business Profile Produce a detailed valuation of the business to identify the Most Probable Selling Price

CONFIDENTIALITY IS ESSENTIAL “ We never ever publicise the name or location of the business we are marketing ”

If Confidentiality is Breached Staff become unsettled Competition spread rumours Suppliers withdraw credit Customers go elsewhere

Staff become unsettled

Competition spread rumours

Suppliers withdraw credit

Customers go elsewhere

OTHER KEY CONSIDERATIONS

Other Key Considerations You must be totally committed to selling, don’t start unless you are. The more flexible you are in relation to deferred payments, earn out clauses and transition arrangements the greater the chance you have of successfully selling your business.

You must be totally committed to selling, don’t start unless you are.

The more flexible you are in relation to deferred payments, earn out clauses and transition arrangements the greater the chance you have of successfully selling your business.

Other Key Considerations Manage the buyers expectations. Take lots of small steps. Avoid confrontation, both parties must walk away happy. (You’ll probably have to work together during the transition period)

Manage the buyers expectations.

Take lots of small steps.

Avoid confrontation, both parties must walk away happy. (You’ll probably have to work together during the transition period)

Other Key Considerations Asset Vs Share sale. Understand the pro’s and con’s for both parties. Keep communication channels open Maintain momentum – deals die if not proactively managed. Be patient, realistic and flexible.

Asset Vs Share sale. Understand the pro’s and con’s for both parties.

Keep communication channels open

Maintain momentum – deals die if not proactively managed.

Be patient, realistic and flexible.

WHY USE A BUSINESS BROKER TO SELL YOUR BUSINESS?

Why use a Business Broker to sell your business? Business Brokers specialise in the confidential sale of privately owned businesses. Estate Agents, Auctioneers and Accountants do not. Business Brokers understand the difference between selling a stand alone property and confidentially selling a going concern business .

Business Brokers specialise in the confidential sale of privately owned businesses. Estate Agents, Auctioneers and Accountants do not.

Business Brokers understand the difference between selling a stand alone property and confidentially selling a going concern business .

Why use a Business Broker to sell your business? Business Brokers know what similar businesses actually sold for and know how to price your business so that it actually sells. Business Brokers understand the type of buyer likely to buy your business , what their motivations are and how to appeal to those motivations.

Business Brokers know what similar businesses actually sold for and know how to price your business so that it actually sells.

Business Brokers understand the type of buyer likely to buy your business , what their motivations are and how to appeal to those motivations.

WHY USE A SUNBELT BUSINESS BROKER TO SELL YOUR BUSINESS?

Why Use Sunbelt Business Brokers? We sell more businesses than any other organisation in the world – it’s the only thing we do. We commit 100% to selling your business. We have a database of 1,500 registered buyers here in Ireland looking to acquire businesses.

We sell more businesses than any other organisation in the world – it’s the only thing we do.

We commit 100% to selling your business.

We have a database of 1,500 registered buyers here in Ireland looking to acquire businesses.

Why Use Sunbelt Business Brokers ? We search nationally & internationally through our network of 300 offices to find the best buyer for your business. We only get paid for selling the business when the business is actually sold . You only get one chance to sell your business.

We search nationally & internationally through our network of 300 offices to find the best buyer for your business.

We only get paid for selling the business when the business is actually sold .

You only get one chance to sell your business.

Contact Us Take the first step towards selling your business today by calling 01 523 7550 to speak with a Broker in complete confidence without obligation. T: 01 523 7550 E: info@sunbelt.ie W: www.sunbelt.ie

Take the first step towards selling your business today by calling 01 523 7550 to speak with a Broker in complete confidence

without obligation.