Exits Need Not Be So Mysterious...
Unbeknown to me, I was recently part of a quality control assessment by an external organisation.
The assessment involved a “mystery shopper” who called the firm with a fictional general enquiry. I am pleased to say that we got full marks for our initial response (I don’t think I have had full marks for anything since a school physics test in 1990).
The premise that the mystery shopper used was that they were one of three shareholders and directors of a small engineering company who had received an unsolicited offer to buy the business. A quick telephone conversation was followed up by an email. Given that the mystery shopper found this to be a useful set of questions I thought it might be worth sharing more generally.
Here were the initial questions that I suggested that the business owner should consider when faced with an expression of interest in his business:-
- Which of the sellers would expect to remain working with the business and who would move on?
- Of those staying with the business, would they be content to work as an employee of a larger group under the direction of others?
- Of those staying with the business, would the buyer organisation be a good organisation to work within and might it offer career furtherance opportunities?
- Of those moving on, is there a minimum exit amount that they would need to receive for any retirement pot?
- Would the sellers be willing to see part of the purchase price be deferred and paid out in instalments or be varied according to the success of the business post-sale?
- Would the existing workforce be assured that their jobs are safe and are there any other legacy issues that motivate the sellers?
- Would the sellers all benefit from Entrepreneurs Relief for tax (no one should resign without understanding tax implications)?
- Would any departing team member leave a gap that was difficult to fill?
- Is there a “comfort factor” from being an employee in a larger group with less ultimate responsibility for success or failure?
- Is there any appetite on the part of the sellers to seek competing offers?
- Would a sale resolve any inherent problems for the sellers (succession planning, difference of views at board level, work life balance)?
Questions about the company
- Where is the company in its potential growth cycle, (recent fast growth, stagnant, slightly downward trajectory)?
- Does the company have long term repeat revenues or is it contract work that is won on an ad hoc basis?
- Are all the company’s affairs closely managed and documented, so as to avoid a “price chip” when the buyer commences due diligence?
- Does the company owe any loan amounts which would need to be deducted from the proposed £2m purchase price?
- Does it own all the assets that the buyer would expect it to (for example the premises aren’t owned by one of the shareholders)?
- Have any employees been granted share options?
Questions about the offer
- It is assumed to be an offer to buy the company’s shares 100%, rather than buying specific assets, but worth confirming?
- Will the purchase price be paid in a single instalment, in cash?
- Would the business be continued to be run as it is currently and from the same location?
- Does the buyer make any assumption about who will stay with the company and in what role?
Questions about the buyer
- Does the buyer have the available cash to pay of the company outright or is it dependant on bank lending or deferred payment arrangements?
- Will the buyer see some unique strategic value in your business?
- Could the buyer cause trouble for you if it wanted to, perhaps in an attempt to drive down the value after an initial rejection?
As I wrote in the email, "...once you been able to have a candid chat about these sorts of issue, you’ll have a clear view on whether you are all pulling in the same direction and what that direction is. Hopefully the answers could put you in a confident position to negotiate an increase in price.Some of these answers would influence what the next steps are. If you want to proceed, these answers would also be useful in making sure we maximise the value in the company and achieve an optimal outcome for all concerned.”
Have you ever received any calls out of the blue about selling your business? If so, would you have found these questions helpful? I'd be interested to hear in the comments below if so - or whether you think there are any other questions that you might have also found useful to consider.
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