Don’t make a mistake when you choose who’s going to sell your company
For most business owners, selling up is a once in a lifetime decision. Yet it’s surprising how casually many treat the selection of an advisor or agent to organise the sale. The choice of advisor can be as black and white as the difference between a successful sale and a failure to sell. Or it can make the difference between a sale at the lower end of the price range vs. one at the top.
The DIY option
Unless you’re a highly experienced corporate financier (or perhaps your business is fairly low value eg sub £250k), in my opinion you’d be crazy to go for the DIY option. And even then, it’s still debatable whether that’s the right thing to do.
Selling a business can be pretty complex, and it’s not something most business owners are experienced in doing. Above all you need to remain focused on your business during the sale process – it’s common for a sale to fall over, or at least the price to be reduced, because of poor trading prior to its conclusion.
Choosing an advisor
There are plenty of people out there who’d jump at the opportunity to be your advisor. Some are great, some are ok, and several are best avoided. Here are some pointers to help you in your decision:
Generally advisors charge a combination of retainer (such as a monthly fee during the process) plus a success fee (normally a percentage of sale value). There’s no guarantee that a sale will be achieved, so the advisor charges a retainer in order to at least cover their costs. As a rule of thumb, the more likely the advisor perceives the prospect of a successful sale, the more they may be prepared to shave off the retainer.
However there are a number of advisors who’ll take on a sale mandate regardless of the possibility of finding a buyer, in order to be paid a retainer. Consequently the proportion of successful sales they achieve is low, and they live off the retainers they receive. Personally, I’d call that bad practice, as an ethical advisor should tell you, in my opinion, what they honestly believe are the prospects of success. Be aware that an unethical advisor may not be honest also about their historic success rate.
- Sector expertise vs sector agnostic
Some advisors focus on a particular market sector, others have a broader remit. Which is best for you? To some extent that depends who’s likely to be the buyer.
An advisor in a specific sector should know all the players, have a pretty good knowledge of who might be looking to buy, what they’re looking for and why. A good advisor will supplement their knowledge with specialist research to make sure they don’t miss anything. They’ll also understand your products and where they fit in the marketplace. So if the buyer is most likely to be in the same market sector, this could be a good choice. Obvious sectors this applies to amongst others are software/IT, pharmaceuticals, healthcare, hotels and restaurants, and retail.
Advisors with a broader remit may not have the specialist knowledge of your sector, but possibly have more lateral horizons when looking for potential buyers. They will rely more on specialist research than the sector specialist.
- What you see isn’t necessarily what you get
Be aware that the person in front of you at a glossy public presentation, or the person who pitches their services, may not always be the person who does the work for you. Make sure you know who’ll be leading the sale process, who’ll be negotiating on your behalf, who’ll be heading up meetings with potential buyers. If they’re using people for other aspects of the work (such as creating the Information Memorandum “IM” and carrying our research) that’s fine, but you need to be sure that they’re really competent and that the person in charge remains leading the project fully and properly.
- References are a waste of space
The references you’ll be given are naturally going to be people for whom the advisor has successfully sold their business. Therefore they’re 99% likely to give a glowing account.
Instead focus on success rate (if you can find it out), see examples of their work such as anonymised IMs, and ask in detail about the process they go through.
Treat it like the recruitment of a key person – you wouldn’t take a risk with that, so don’t take a risk with this decision either. If you don’t trust them, believe that they’re highly competent, and feel completely confident that they’ll do their best to sell your business successfully, don’t appoint them.
This is the estate agent trap. You have an optimistic view of your business’s value (who doesn’t?), and the advisor doesn’t challenge it or put you right. I’d prefer to work with someone who tells me how it is, rather than what he perceives I want to hear. Wouldn’t you?
A couple of other things to emphasise…
Get it off your chest
Once you’ve appointed an advisor, don’t hide information from them. They’re acting on your behalf and they need to know it all so that they can work out the right strategy. It’s always advisable to fully disclose any potentially negative information to a buyer prior to them making a formal offer – otherwise when it comes out during due diligence they’ll either withdraw or the price will be reduced.
Keep your focus on your business
Don’t take your eye off the ball during the sale process. If you’ve appointed the right advisor, sure you’ll need to spend some time with them and provide them with the information they need, but they should be doing most of the work, so you can get on with that vital task of meeting or preferably exceeding your current business plan.
Share this post: