2018 has been a busy year for deals in the UK’s F&B market. Against a backdrop of brands scaling and some major players such as Eat and Jamie’s reigning in expansion plans, the food and drink M&A market remains robust. There’s undoubtedly opportunities for a well prepared seller. Here’s how you can ensure you maximise the value on the sale of your business as an owner manager:
Preparation and timing
Choosing the right time to start your sale process is vital – two or three years’ good trading is ideal, as is retaining control of it and maintaining momentum. Once you’ve decided to exit, it’s important to execute the process efficiently. Ensuring that your business is sale ready is equally key: in much the same way as your house never looks better than when it’s put on the market so it is with the sale of your business. A successful process can often take at least a year to plan and three or more months to actually happen.
Get your due diligence right
To extend the housing analogy, a well organised sale process will see the seller prepare the corporate equivalent of a home buyer’s pack – “vendor due diligence”. This involves anticipating the questions which a well-advised buyer will ask and preparing the answers. It serves two functions – control of information flow and an opportunity to identify – and address – potential problems which might otherwise give the buyer an opportunity to reduce the price, or withdraw.
Understand the value of your business
Don’t confuse price with value. Value tells you what your business might be worth and is an important starting point for your sale negotiations. Price tells you what someone is actually prepared to pay – and far more important. There’s a variety of valuation methods, ranging from a multiple of profits to cashflow, assets and turnover. It’s important to engage specialist corporate finance advisers to help guide you through this part of the process and help with the valuation exercise and price negotiations.
Know who you’re selling to
One of the first steps to exit is to identify the potential buyers of the business – your business will have a different value to different buyers. A trade buyer, for instance, might be prepared to pay a premium to reflect the synergies or market opportunities your business represents. The buyer may be overseas or domestic, trade or a financial (private equity) buyer? Knowing your potential buyers, and importantly, what matters to them, is an important first step.
We often hear owners say they know who their buyers are but an experienced corporate finance adviser with in-depth knowledge of your sector can make a real contribution. For example, helping you filter out any “tyre kickers” (non-genuine bidders) and ensure that the bidders are adequately funded.
Take care of your people
Look after your team. Ensure that your key staff have signed adequate contracts of employment which protect your business. The possibility of key management leaving to compete with you will do little for a successful sale.
You’ll also want to review the quality of your senior management team and address any gaps. A business heavily dependent on its owner can pose a variety of issues to different buyers. Incentivising your management team to help secure a successful sale process is another wise step. Aligning interests at this stage can be crucial as the senior management team may well be key to the buyer’s plans for the business.
Check your contracts
This feels onerous but is critical to a successful exit. Check the material contracts along your supply chain. For instance, suppliers sometimes include “change of control” clauses in their contracts, which in practice enables them to renegotiate your purchase terms or even refuse to supply your business if they don’t like the buyer.
Other areas to look out for include ensuring your business’s intellectual property rights are properly protected – they underpin the brand you’re looking to sell, after all – and make sure your business is regulatory compliant, with appropriate licences and consents for any sale.
Run an exit checklist
Identify any potential hurdles before your buyer does. This will protect your business’ value through the sale process and head off those eleventh hour “price chip” discussions. Make sure you:
- Resolve any minor commercial disputes and employment issues.
- Have your accounts, filings and financial records up to date. This is a sensitive aspect of any sale transaction and an area where value can easily “leak”.
- Have ensured all shareholders are on side before you start the process.
Have the right legal team in place too. They’ll represent your interests throughout negotiations, work closely with other advisers and ensure a smooth process.
Finally, it’s key to keep your focus on your business and minimise any disruption to trade throughout the sale process. It’s so easy to take your eye off the ball, but declining trading can unnerve buyers. If the process fails for any reason, you can then find your business potentially damaged through lost momentum. Staying on track and working in partnership with your advisers and buyers is the way to a successful exit.