Three reasons to set your acquirer lens to panorama

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This blog focuses on how you can dramatically improve your odds of selling successfully, to the best buyer, with the best deal.

When selling to trade buyers, there are two main ways owners end up in a company sale process situation:

The market comes to you – This is where a buyer makes an uninvited approach to you about selling, you are attracted to the idea and pursue a single buyer process.

You go to market – This is where you’ve decided that the time is right and you want to launch a formal process to ‘go to market’ and find the ideal buyer.

To a layman, the first scenario has many attractions and the latter has some risks. However Equiteq recommends that you proceed with a single buyer process only in exceptional circumstances. There are three reasons why going to market should better serve your interests and reduce your risks.

1. Buyer demand is wide and increasing

Don’t limit your ambition and increase your risk with one buyer, when there is a large universe of potential buyers across the globe and their demand for acquisition is increasing.

Equiteq tracks all of the deals that happen in the consulting and professional services sector, from engineering to media consultancies. In the last 5 years nearly 6,500 buyers have acquired just over 10,000 firms, practices, or agencies. The pool of interested parties for your company will be diversely spread across different acquisition drivers and interests.

Economic and commercial globalization, plus technology convergence, is driving the need for larger firms to maintain growth by attracting and servicing an increasingly multi-national client base.

2. Your objectives when selling will be better satisfied

For most owners, maximizing financial proceeds is a primary outcome objective, but often different shareholders have varying financial concerns. If you have been approached by a buyer that unequivocally satisfies everything you dreamed of as a new home for your firm, all shareholders can be satisfied and price/deal structure is not your dominant need, then this may be a reason to seriously engage on a deal process with them as your preferred bidder. However, all of your eggs are in one basket and if the buyer pulls out for any reason, the deal is dead.

The most significant gain in going to market to attract multiple bidders is deal leverage and choice of home. Typically, going to market would include a filtering process on the 30 to 80 buyers approached, yielding 4 to 10 good quality bidders. This is the stage where leverage is at its maximum before ‘going exclusive’ with your preferred buyer, under a Letter of Intent with Heads of Terms agreed.

3. Transaction completion is significantly more likely

Notwithstanding the loss of choice on the ideal home and lack of leverage to get the best deal, there are two risks associated with a single buyer process – the elapsed time to close and closure probability, where these factors are mutually inclusive.

In the real world, from start to finish, a deal without any complications will take about 6 months. The risk for you is that the longer it takes, the more opportunity there is for something outside of your control to occur that causes you or the buyer to withdraw. Unfortunately, there is usually more at stake for you than your buyer, so in a single buyer process he can easily drag his feet, because the only significant leverage you have is to pull out.

If you have multiple bidders in place before exclusivity, you have a large amount of control over the selection of the hungriest buyer, the milestones he needs to satisfy while under exclusivity, and the terms under which the price is defended or improved while in due diligence.

You can read the full article that this blog is based on here.

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How do you know if you’re ready to sell your business?

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Having a goal to work towards helps to focus activity. So if you’re a consultancy owner who has been growing a business with a view to one day selling it, regardless of the industry you operate in, knowing the signs that mean you’re ready to sell will help you achieve this aim more efficiently.

There are six areas that you need to pay attention to:

1. Buyer confidence: Buyers do not like risk and so are looking to purchase consultancies that will not only bring their organization value, but will do so with the lowest possible risk of anything going wrong. Factors that buyers will assess in this area include financial performance, for example high gross margins, the amount of fragmentation in the proposition or services and the mix between employees and associate staff

2. Strategic attractiveness: Buyers want to see value as a result of purchasing a consultancy and therefore examine the underlying drivers of value and potential for synergy. This covers areas such as whether the target is operating in a sector which has clear drivers for the future growth of demand for consulting, whether the company’s client base is attractive and if the company is scarce or a ‘must have’

3. Shareholder alignment: Different businesses have different ownership structures. The breadth and depth of shareholder support, as well as the extent to which the ownership structure supports a transaction, all impact on when a firm is ready for a sale. For example, if there are 10 shareholders with 10% each, this is a very different proposition compared to one shareholder who holds 100% of the company

4. Sustainability of performance: Preparing for and going through a sales process is a lot of work and can have an unwelcome impact on a firm’s profitability if it is not managed well. This process cannot be allowed to affect the business-as-usual operations, as a firm needs to continue to grow. Areas under consideration will include how stable the employee base is, how much forward visibility versus budget the company has entering the sale process and what the likely impact of the process on business development will be

5. Deal support: This is the capability of the business to support the deal process. There are only so many hours in the day and if the managing director is also the financial director and the sales director, then chances are that they are not going to have the time to be able to deliver what is required by the due diligence process within the required timeframes. Buyers also look at other factors, such as the ability of the target to quickly and efficiently update its view of operational performance as well as future performance

6. Transaction preparedness: How ready is the company to enter the deal process? Buyers will want to kick the tires and probe all aspects of the business. If they pop open the hood on the financial department and find it’s a disorganized mess, then they are likely just to walk away. All aspects of the business must be tidied up so that not only are there no nasty surprises, but there is a clear case of the benefits to the buyer of acquiring your business.

We will be looking at each of these areas in turn and providing more detail in future blogs. So if you’re interested in gauging if your consultancy is ready to sell, please check back with Equiteq Edge regularly.

If you are preparing to sell your consulting firm and would like to discuss your plans, please get in touch.

Are you a member of Equiteq Edge? It’s full of content to help consulting firm owners prepare for sale and sell their business. Register here to gain full access.