Who will buy my business?

‘Sell and walk away’ is not the only business exit option. Kevin Kevany looks at some of the other ways to ensure the best possible outcome when selling your business.

It seems selling your business is a bit like dying. We all know we are mortal and the facts tell us that every business is sold eventually, even if it outwardly remains the same. So why the reluctance and embarrassment to plan for it? Some advisors say you should plan to sell your business right from the day you start it.
The ‘Baby Boomers’ are starting to fold their tents. The market cannot wait. Our experts predict a boom in the coming years and they all have sellers champing – to get ‘a bit’.
Brokers (often linked to estate agencies these days), accountants and financial advisers all have a role to play, and are very active below the grey blanket we all like to pull over this vital stage in the life of every SME. Property linked to the sale of a business has complicated sales in post-earthquake Christchurch and the resulting requirements for building strengthening, particularly in Auckland and Wellington, are predicted to weigh heavily on these transactions in the future. Specialist help will be necessary.
We are going to look at three distinct options: putting your business up for sale on a specialist website; dealing with an investment banking operation; and getting one of the Big Four accountancy firms to guide you through the sales process. All are real options depending on: the stage your business is at; your health (or you’ve died); your employees/family aren’t interested; you are bored, but have time on your side, and could entertain selling off parts of your business; or whether you might opt for a ‘negotiated tender’.
First up, is the highly-enthusiastic Richard O’Brien of online firm NZBizBuySell. He has some 12 years in the game and is currently sitting with more than 50,000 visitors a month viewing more than 3,000 listings, ranging from small home-based businesses under $10,000 to large resorts for $10 million, and “everything in-between be it hospitality, manufacturing, services, retail and distribution”.
“We see ourselves helping New Zealand business buyers and sellers get it right by offering checklists, articles, directories and an extensive range of business for sale opportunities,” says O’Brien. “No one on our site is looking to buy a car, cell phone or dishwasher. $98+GST gets you an entry for two-months and $248+GST gets you premium space and YouTube insert.”
He points out that he is not in a position to guarantee the validity of everything listed, simply because of time and cost.
“That’s a role for your accountant, adviser or broker to do on your behalf. However, if a dodgy deal is identified by a qualified person we will take that up with the person listing the business.”
He points out that selling a business takes time, energy and know-how.
“Thousands of businesses change hands every year, with varying levels of success. To get the sale you want and your best result, it pays to understand the business sales process well, and the four main steps to maximising your returns when selling a business. These are: planning, marketing, negotiation and the actual sale of the business.”

The four-step process
“Planning is critical [when selling],” says O’Brien. “It’s about knowing who your likely buyer may be; what they will be looking for in a business; and how to best present and pitch your business for sale. Business buyers are primarily looking for cashflow, good systems, and a business with a future.
“So prepare by reducing unnecessary expenses and increasing sales to improve cashflow. Formalise all your business systems and processes, ensuring the business is less reliant on you, and allowing the easy transfer of the know-how and goodwill with the sale.”
Next, O’Brien advises you to assemble a team of professionals to help. An accountant to prepare financials, offer advice, and possibly help in valuing your business. A lawyer to help with the contractual side and, if you have limited skills in the area of business sales, you can to use a business broker to appraise, value and market your business. (The NZBizBuySell website provides a list of REAA 2008 qualified business brokers who are there to help.) Determine what’s important to you and work with your team to set any particular conditions for the sale.
“Finding the right buyer can take time,” O’Brien says, “so target your best prospects to attract as many potential buyers as possible. Use networks and popular business for sale websites, and consider some print and database marketing.
“Any interested parties need to be screened to ensure they have sufficient funds, skills and commitment to buy and run your business. You know what that takes. Only qualifying buyers should get to sign a confidentiality agreement and gain access to more detailed information.”
Only begin negotiating once you have an interested and qualified buyer with an offer. Accept offers made in writing on a standard “Sale and Purchase Agreement” and use this as the basis for your negotiations.
“The agreement sets out the price, and the terms and conditions of the offer, and will usually be dependent on the purchaser completing due diligence to their satisfaction. Work with your team and the buyer to satisfy any concerns so you get the best deal and a satisfactory offer.”
Now you are nearly there. Once the contract is signed, there are usually conditions to be satisfied.
“Due diligence is where the purchaser’s team examines the business in more detail, to verify all the information provided. This normally takes between ten and 20 working days, depending on the availability of information and complexity of the business.
“It’s important to work with the buyer to help satisfy the conditions of the offer. Once satisfied, the contract is declared unconditional by the purchaser’s lawyer, and the business is sold,” says O’Brien, noting NZBizBuySell provides a free, four-page ‘Business Seller Checklist’ online, on how to get more when selling your business.

Negotiated tender
Three Sixty Capital Partners’ Stephen McElrea highlights three particular issues his investment bank-type operation finds are critical to achieving a successful sale. And he introduces an area of specialisation, the negotiated tender, to “differentiate ourselves from the ‘business broker sector’.” Their niche is medium-to-large businesses.
 “There is an old adage, ‘a wise buyer buys potential, and doesn’t pay for it’; meaning if she or he can see potential upside and growth, they will pay a fair price, based on history, but will not pay a premium for that potential growth which they have yet to make happen,” says McElrea.
In his experience the issues are:
1. How do I sell the business without upsetting my customers and staff?  (seller).
2. The perceived reliance of the business on its owner (buyer).
3. Confidentiality is paramount to the sale (both parties).
“The first two are linked, and the third is where we deliver,” says McElrea. “A common weakness of businesses for sale, from a buyer’s point of view, is if the owner goes, how much income leaves the business?
“The answer is to ensure a GM is already in place and has the primary supplier, customer and staff relationships in hand; making it more likely the transition will pass smoothly.
“Those crucial relationships can also be irrevocably damaged by whispers of ‘Bert’s business is on the block’. Most sales transacted by Three Sixty Capital Partners are carried out under the radar with confidential approaches to hand-picked companies we are aware of in the sector and in acquisition mode,” McElrea says.
They have a number of tools and techniques they bring to the process too to ensure successful outcomes.
“A structured business sale can address those fears and also provide a financial solution for a younger person with lashings of skills and energy, but limited capital – allowing them to ‘pay off’ some of the purchase price over time. Vendor finance can achieve this, as can an ‘earn-out’.
“Most business transactions we manage involve an agreed transition with the vendor continuing to play a crucial, but reducing role, over time – and that also helps to address issues 1 and 2.”
According to McElrea, the most taxing stage of the process for the seller seems to be ‘due diligence’, when the buyer’s advisers request detailed information to verify and confirm assumptions or statements made in the Business Profile, which his company bases on the Business Appraisal they do immediately they engage with a company.
“That appraisal is based on an analysis of financial performance over the last few years, and recent sales in the sector. Establishing a valid market value for business requires an understanding of the industry-sector and trends, market position, competitors, supplier and client contracts, stock holdings, asset values, key staff skills and reliance on the owner.” Revenue, gross profit and EBITDA history complete the list.
“We ease this process further, for both parties, by providing a secure, virtual data room on our website and working closely with the purchaser’s advisers,” adds McElrea.
He describes a typical recent negotiated tender, in eight weeks, where they directly contacted 17 overseas companies and 45 New Zealand based firms from their databases and research.  Six Indicative Non-Binding Offers with a price range were received by the due date and refundable deposits paid into a trust account.
The seller opted to proceed with five, who commenced due diligence, with four weeks allowed, using their secure, virtual data-room. Three legally-binding Final Offers were received. After negotiations with all three, agreement was reached with one. A Sale and Purchase agreement was signed.
McElrea highlights the features of the whole process, including: “the competitive process ensured the best price for the seller; no public marketing; the confidentiality of the data room; and eight weeks from start-to-finish”.

Achieving your goals
PwC, one of the Big Four global accounting firms, recently established PwC Business Sales, bringing together experienced professionals and the reach of PwC’s corporate finance team.
“Our niche is taking the package of services we have and bundling them up and providing a sort of turnkey solution for New Zealand SMEs,” says partner John Dobson. “The traditional approach of business brokers is ‘list it, we’ll get a price for you and sell it’ – but the solution is often not a sale.
“For a lot of people today, the best solution may be to change the way they actually relate to their business; for example they become owner of the business, not an operator. They put in professional management, step back and become a ‘governor’ not a worker.”
It doesn’t matter what stage of the selling process your business is at, it’s just important to start thinking about it now, he says.
“We set you on the best path to achieve your business goals – which doesn’t necessarily mean selling immediately. We can help you sort through the complex issues – including personal and family issues and make decisions that need to be made,” adds Auckland-based PwC director, Tim Herbert.
“Our Business Sales team runs ‘Come Think With Us’ strategy sessions, spending time working with owners ‘on’ not ‘in’ your businesses.
“[As an example of this] take a session we had with the owner of a manufacturing business where initially the goal was to sell in two years time. We identified an opportunity to sell part of the business now (gaining access to expansion capital for some new opportunities; reducing the risk to the business and the owner), and increased the value on the final exit.
“Ultimately, the owner completed an excellent transaction which fully-achieved the goals, even though they were very different from his original objectives.”
Herbert believes the ability to adapt to each situation and recognise that no one-solution-fits-all is crucial. Often people’s views and goals become much clearer through the process (particularly as the offers land on the table) and it’s important the transaction changes to reflect that. You can’t become too fixed on one type of transaction.
“As a business owner, selling a business can be one of the most significant challenges you’ll have to face. We understand it’s not just about getting things technically right – it’s much more personal than that,” says Herbert.

Kevin Kevany is an Auckland-based freelance writer. Email [email protected]

Why all businesses don’t sell first time
1.    Poor performance/returns.
2.    Dim future.
3.    Badly priced (expecting too much).
4.    Too risky.
5.    The owner is the business.
6.    Lack of systems or process.
7.    No-one willing to lend on it.
8.    Lack of interested buyers.
9.    Not packaged and marketed properly.
10.    Legal and/or property problems attached.
Source: NZBIZBUYSELL

How to sell for MORE
• Make your business look attractive.
• Improve its systems, processes and profitability.
• Have all necessary information available.
• Have a marketing plan in place.
• Market your business to your potential buyers.
• Have realistic expectations.
Source: NZBIZBUYSELL