Six ways to maximise the value of your business in the run-up to a sale

In a more cautious climate, buyers and investors are placing greater emphasis on due diligence. Roger Esler, Partner and Founder of Dow Schofield Watts’ Corporate Finance team in Yorkshire & the North East explains how vendors can plan and prepare to achieve the best outcome and maximise value.

sell your business

  1. Be clear on objectives and priorities.

Maximising value might be the obvious objective of any sale. But factors such as realising synergies, commercial confidentiality and finding a “good home” for a business can influence which buyers to focus on and which to avoid. Depending on the capability and appetite of the management team, a full or partial management buy-out (“MBO”) may be more attractive than a trade sale and comes without the same commercial risks.

  1. Embrace momentum and avoid the plateau.

Valuation is a function of several factors, most notably earnings and growth. Given the duration of a transaction process, waiting too long and going beyond a “peak” can result in erosion of the valuation multiples applied and tracking behind budget can be even more detrimental to getting a deal away. Buyers acquire the future, not the past. Whilst trade buyers can take a shorter-term focus on run rates and budget, investors backing MBOs take a much longer-term perspective on growth plans.

  1. Present management solutions, not vacuums.

Even once a business is sold, it will be the management team that has to deliver on the business plan, not the buyer or investor. If there isn’t a full management team or a long-term succession plan in place, the vendor needs to explain during the sales process how this will be addressed – for example, by transitioning control or by senior recruitment. Earn-outs are very common and work best when aligned with succession and retirement timescales.

  1. Prepare for deep and broad due diligence.

Buyers and investors paying fair and full value will want to do comprehensive due diligence, and scrutiny will increase in times of uncertainty. This can go beyond core areas of financial and legal due diligence to cover market, customer referencing, ESG compliance, technology and management.  Due diligence should be a process of confirmation, not discovery. Your advisers should be both assimilating business information and challenging it to identify and resolve any issues before going to market.

  1. Keep focused and keep investing.

Running down the balance sheet ahead of a sale process in an attempt to inflate profits and net cash, whether through underinvestment or squeezing working capital, is a fool’s errand and will affect both the value and the integrity of the process. Maintaining focus on trading performance, continuing with proper investment – evidencing the capacity to accommodate the growth forecast – and optimising working capital and cash flow through sound financial management well ahead of a sale are the best ways to maximise share value and minimise transaction risk.

  1. Assemble the right team at the outset.

The most valuable advice is given at the start of the journey. It should begin with a thorough evaluation of your strategic options before preparing to go to market with a clear vision as to the expected outcome. Legal and tax input will be required, as well as corporate finance advice. Getting the full, collaborative deal team together early will pay rich dividends, as this will enable the provision of holistic advice and ensure process efficiency without actually impacting overall costs.