Investment Banking 101: How to Maximise the Sale of Your Business | John Colley | Skillshare

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Investment Banking 101: How to Maximise the Sale of Your Business

teacher avatar John Colley, Digital Entrepreneurship

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

18 Lessons (1h 46m)
    • 1. How to Maximise the Sale of Your Business

    • 2. Introduction How to Maximise the Sale of Your Business

    • 3. Understanding the sale process

    • 4. Selling a Business Transaction Timing

    • 5. Selling a Business Preparing for the Sale

    • 6. Sale Objectives

    • 7. Selling a Business Valuation

    • 8. Pre Sale Preparation

    • 9. Selling a Business Legal and Admin

    • 10. Selling a Business Operational Preparation

    • 11. Selling a Business Financial Asset Review

    • 12. Information Memorandum

    • 13. Selling a Business Identifying the best buyer

    • 14. Buyer Segmentation

    • 15. Selling a Business Due Diligence

    • 16. Key to a Successful Deal

    • 17. Selling a Business Deal Process

    • 18. Selling a Business Summary and Wrap Up

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About This Class

Welcome to this Course in my Investment Banking 101 Series.


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Introduction How to Maximise the Sale of Your Business

Welcome to this brief course which I have designed to help you to maximise the value of your business when it comes to time for you to sell it.  This is not a "how to sell a business course"  This is a "how to sell a business for maximum value" course and I have really enjoyed delving into my 28 years of investment banking experience to share some of that with you to ensure that you put yourself in a position to create that result when the time comes.

Understanding the sale process

The sale process can be complex, so I thought it would be helpful to start this course by discussing some of the key stages of the sales process and sharing some insights with you about how to manage them to ensure that your sale process achieves the maximum value for you and your shareholders. 

Selling a Business - Transaction Timing

When entering into a sale process, its important that you understand the time the process will take as well as the shape and structure of the sale process. In this video I provide you with an overview of this against which we shall set the remainder of this course.

Selling a Business Preparing for the Sale

So, you are considering selling your business.  Well, lets just stop a second and take stock of some important issues you need to address with your board and your advisors before you start down this long and difficult path.

Sale Objectives

Lets put a few markers down now.  If you don't know what your objectives for the sale are, how on earth are you going to be able to evaluate the result when it comes to judging the offers which are put on the table.  Stop, take stock and do some thinking about this right at the start and make sure everyone is on the same page.

Selling a Business Valuation

How do you value a business? Answer - with difficulty.  This is the how long is a piece of string type of question.  In this video I want to share with you the main methods that are used to come up with business valuations.  At the end you won't be able to do one, but at least you will have some idea what your bankers are talking about!

Pre Sale Preparation

Prior Preparation Prevents Poor Performance.  This section is all about sharing with you my best advice to ensure that when you get into the sale process, you are as well prepared as you can be.  If you follow this advice and get your business sorted out before you start, its going to be a lot less painful and your chances of maximising the proceeds of the sale will be greatly improved.

Selling a Business Legal and Admin

Your legal advisers will give you a horrifyingly long list of due diligence items to address, so frankly, the sooner you start looking at them the better.  This lecture highlights some of the legal and admin issues which must get sorted out.

Selling a Business Operational Preparation

Next, I want to take a look at some of the key operational issues you can address to maximise value. Some of this is about downside protection but its also about optimising your business' operations today - which is a good thing to do anyway, right?

Selling a Business Financial Asset Review

Every business has dead wood and surplus assets.  Sorry, don't want to upset you but its true.  So, why not cut out the dead wood now and liquidate the surplus assets now to make sure you get the benefit from them and not your purchaser.  I am sure you get the idea!

Information Memorandum

Now, I want to talk to you about preparation for the sale process itself.  The most important document you will prepare, with your advisers, is the Confidential Information Memorandum or "CIM" ir "IM".  This lecture is a steer towards what is important to get right and a guide to help you ensure that your advisers do a good job for you. After all, you are paying for it!

Selling a Business Identifying the best buyer

Buyer selection is one of the really critical aspects of the sale process which is why I am spending two lectures discussing it.  Firstly I want to explore with you what makes a good buyer and provide you with some criteria by which you can judge the list of potential buyers your advisers will prepare for you.

Buyer Segmentation

To help you to understand the different types of buyers you may encounter I have provided this basic segmentation.  I share with you my view on the pros and cons of each type of buyer to help you evaluate their quality and potential contribution to the sale process.

Selling a Business Due Diligence

Hey, we are back to Due Dilgience!  This is not meant to put you off the whole process but if you follow my advice in this lecture, you will keep better control of what is going on and are less likely to make elementary mistakes.

Key to a Successful Deal

So, what is the secret to a successful deal.  Well, I can't give you that magic button in one five minute lecture, but I have tried to set out some guidelines which will help you towards that goal.  A successful transaction is one in which you achieve a sale at the upper end of your price expectations and that is what this course has been all about.

Selling a Business Deal Process

While I am sure your advisers are going to do a good job for you, here are a few tips to help ensure that you keep them on their toes.  You need to be in control of this process (working with your advisers) and must not allow the potential purchaser (and their advisers) to get the upper hand.


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Meet Your Teacher

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John Colley

Digital Entrepreneurship


Exceed Your Own Potential! Join My Student Community Today!


Here is a little bit about Me...

Cambridge University Graduate

I have a Bachelors and a Masters Degree from Cambridge University in the UK (Magdalene College)

Master of Business Administration

I graduated from Cass Business School in 1992 with an MBA with Distinction and also won the Tallow Chandler's prize for the best Dissertation.

British Army Officer

I spent nine years as a Commissioned British Army Officer, serving in Germany and the UK in the 1980s, retiring as a Captain. I graduated from the Royal Military Academy Sandhurst (Britain's West Point) in 1984.

Investment Banking Career

I have spent over 25 years working as an Investment Banker, advis... See full profile

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1. How to Maximise the Sale of Your Business: How can you maximize value in a business sale? Now, this is a really key question. If you're considering selling your business, then you absolutely want to get the best possible price for it. After all, you've spent years and years of work building on this business. But you get a one time event, a one shot go at selling it, so you really want to get it right now? I've been around a long time. I've seen lots of processes go really well, but I've also seen lots of processes go really badly, and when they do, they could be catastrophic for the owners and custom, an absolute fortune. However, if you're sitting on the other side of the table, that's great news. If you're the seller, it's a disaster. So what you really need is expert and experienced advisors. But you also need to know what's going on yourself. This is your process. You really have to be on top off the detail. Now, I want you to imagine just how great you're gonna feel at that point of signing when you close the deal and you've got top dollar for your business and you're really, really excited about it. But can you imagine how awful you're gonna feel If the whole thing is a disaster, you get a really low price or worse than that, it or you don't even sell the business. So this is exactly why I've created this course for you. I want to share my knowledge and experience to help you get the best value for your business. My name is John Colley. I've been an investment banker for nearly 30 years, and I've been focusing on the tech sector since 1998. I've seen a lot of deals go down, but I've also seen lots and lots of really excited entrepreneurs. When they sign that sale and purchase agreement on, they know that they've got a great deal and I want that to be you. That is exactly why I Britain, this course on, I'm gonna take you through step by step, sharing my insights into what you can do to ensure you maximize the proceeds for your business from your business for your shareholders and for your family. Now I'm going to cover the initial planning stage, which is critical. I'm going to cover the things you need to do in the pre sale preparation phase, I'm actually going to take you through some of the really important points you have to cover when you're preparing for the actual sales process itself. And then, of course, I'll talk to you about some of the really critical issues in marketing the business. This course could literally save you thousands of pounds for dollars. It is such a valuable and important part of your business, lifecycle. You cannot afford to get it wrong. So what are you waiting for? Maximize the sale of your business in role in this course today. And I really looked forward toe working with you through the course and helping you to create the maximum value for the business you've worked so hard to create. 2. Introduction How to Maximise the Sale of Your Business: hello and welcome to selling a business. How to maximize the value off your business when you sell it. My name is John Colley. Thank you very much for enrolling in the course. It is great to have you here. The whole idea off this series of videos is for me to share with you some of my 28 years of investment banking experience to help you realize the maximum value when you come to sell your business. Now I don't exaggerate when I say I've seen this business from all angles. I've acted on the buy side, have acted on the sell side. I've done purely domestic deals. I've done cross border deals. I think the most extreme example of that was when I helped ah Heidelberger Cement through there, which is a German company through their Belgian subsidiary CBR, to acquire a controlling interest in India cement which was in Indonesia. So that's the really good cross border deal. All sorts of interesting points there on Dive also dealt extensively with both trade I strategic or corporate buyers and also with financial investors. So it's ripe privilege and I'm very excited to be here to try to help you. I understand some of the background stuff. This is the stuff people don't normally talk about. I'm not going to teach you the deal process. I'm not gonna teach you. You know what a due diligence list is? I'm going to try and give you the inside track, the background information. You need that to make sure you don't make mistakes. And you don't a trip up fall into novice pitfalls which will ultimately cost you a lot of money and means that you won't be able to maximize your business. Now, broadly speaking, this is broken up into four categories. I'm going to talk to you about some of the things you need to do very early on in the initial planning phase, and it's really critical you get these right. Then before you start marketing the business, there are some also some very important steps and things you need to know about in the pre sale preparation pays on. I'm gonna talk to you about those. Then I'm gonna talk to you about how you prepare for the sales process and finally about the final phase of marketing the process. As you say. This is not a A to zed off how to sell your business. This is designed very much to help you focus on what you have to do during that process to maximize the value of your business. So I hope you're going to find this really valuable. I'm really thrilled you're here on. I'm really looking forward to working through this course with you to really help you maximize the value of your business. So let's crack on and get started and go and take a look at the first video where we're going to go through the transaction timing. 3. Understanding the sale process: I just thought I spend a few minutes talking you through the sales process. So if you haven't come across the exercise of actually selling a business before, then you're going to get a chance to understand broadly how it works Now. The first step, when you come to sell your business is actually all about the planning on the preparation. And it's really important that you do a proper phase off getting your business ready for sale. Because if you don't one, you're going to get caught out by perspective buyers. And secondly, we're going to find the whole process much more stressful and much more disruptive for your business. So you need to go through the various parts of your business the operations, the finance, the whole management issues structure. But also you need to look out through all the potential pitfalls. So litigation, any disputes, any bad debts and really clean things up. Just imagine if somebody was going to go in and do a detailed inspection of your business. You don't want them to find lots of things that are wrong, and that's exactly what's gonna happen when perspective buyers get into the Jude allegiance phase so it's far better to get everything tied it up and sorted out before you start, rather than being tryingto hide in disguise and sort out in the background skeletons that are lingering in that covered. Now let's talk a little bit about the documentation that's going to be required. The main document, which your advisers will help you prepare, is the confidential information memorandum, and this basically is the book. It's sometimes 50 or 60 pages long, which sets out the basically what people are buying in your business, and there is a structure. This is not the time to go through the detailed structure, but it is the book on which they will learn a lot about your business, and it helps them to decide if they want to make an offer for the company. Now to support that in the marketing phase and honor no names basis. There is also a one page teaser, as it's called, which is basically a very high level summary, and very often it's the summary off the executive summary form the investment memorandum, and this is sent out on a no names basis to support initial approaches to potential buyers on I often have as well, but I call an investor script, which is like the six key points that I really want to get into people's minds about why they want to buy the business. Now. You can't be too dogmatic about this because different buyers will have different rationales. So you have to tweak that to really address the rationale off the potential by that you're talking to to make them understand why they should want to pay a strategic premium for this company on then. Finally, there is the management presentation on This is the presentation that you, as the management team, will deliver when you meet prospective buyers on. This needs to be really carefully put together and really well delivered, because that instills a lot of confidence in the potential buyers in the whole process and in the management team off the company. Now your advisers will go through a process identifying prospective buyers fuel company. Now they again, these are going to be a range of people, and they may not come from the same country that you're in very often the best strategic buyers of people from abroad, and they can be in the States, or they could be in Japan or they could be in India. They could be literally anywhere in the world as long as there is a good reason and they are reputable, so they may wish to consolidate the particular market. Urine they might wish. Want to acquire some of the expertise or the technology that your company has developed equally? There may be new entrants to the market now. This may be a company in the same country entering a different product market. Or it could be somebody from abroad entering a new geographic market equally well. They might be financial investors who particularly specialize in your sector, and we'll want toe. Add your company to the portfolio, and then they will very often want to continue with many of your existing managers. So becomes a management buy in, so a management buy out your management. Buy in is when you bring a management in from outside. I wouldn't recommend doing that much better. Have a management buyout on then. Finally, the key point about finding these investors. It's finding people who are prepared to pay a strategic premium and who will value your business, particularly because they can see benefits combining it with their existing businesses. Confidentiality is really important point, particularly if we're talking to some of your competitors, and the way to protect this initially is to have all the discussions on a no names basis. So we go out or the or advisers will go out and talk two potential buyers, but they won't actually reveal the name of the company they're talking about. And it's not until a non disclosure agreement has Bean signed, which protects you and protects your company's proprietary information that the name is actually released. Because what you don't want is for the fact that your business is for sale leaking out into the market because this could be commercially damaging. Now there will be a number of management meetings held with prospective buyers, and these need to be prepared for very carefully. Your advisers will arrange them, but they will also help you prepare for them and coach you on how to deal with questions because in any process, and I've seen this happen many times in any process, there is a point where you say you get asked a question and it's just too confidential for that stage of the process, and you have to know when to draw the line and say, Well, actually, now, I'm sorry. I'm not going to answer that question until we're much further forward in this whole process. And, of course, when you do have the management meetings, you always want to keep the momentum of the deal going forward. So you want to know from them what their next steps are, And it's also an opportunity for you to learn as much as you can about the people who potentially buying your company. Now the advisers will run the process and the process management off a the exit. A sale of a company is actually quite a complex and detailed thing, which has to be managed very carefully on a day to day basis. They will draw up a program on the timetable with key milestones in it, and the whole purpose of that is to try to keep the potential buyers moving along the process and the thing that's just not drawing out and dragging on forever. They will want to know at a very specific point what offers air going to be provided and when they get to that point with it. With potential buyers, a letter is sent out asking the potential bias to set out their offer in a particular format, which makes it much easier for the the company and for the advisors, then to evaluate comparative offers. This is all part of the key process, which is run for you, obviously, your advices and you will screen these bids. But whatever happens, it's important that when this process is being managed that the main momentum the momentum is maintained on the process keeps moving along. Offer evaluation and preferred by a selection is a very important job tipping point in the whole process. Because this is where you sit down, you evaluate the offers that have come in, and you select 12 or three buyers, as preferred bidders to move forward with on to negotiate with Now. You'll obviously need to look at them comparatively, and you want to see how much they're offering and how they're proposing to pay for it, said the consideration. It's important to try to understand something of their strategy for your business because that'll tell you how they proposing to combine it with theirs on their ability to pay a strategic premium. It will be important to you. It should be important to you to understand what their long term objectives are for your existing management and for your staff and employees, and you'll want to know what their timetable is. And if I could spell timetable correctly, that would also help on then. Finally, of course, you would want to know from them the due diligence that they want to do, although again your advices will have a Jew diligence pack data room put together on. We'll manage that process. But it's always helpful to ask the perspective buyers if there's anything particular or maybe something out of the ordinary that they would like to address in the Judean due diligence process. Because you want advance notification of that when you get to the step off final and best offers with restore short list of preferred buyers, it's important to keep the competitive tension moving. Aan den Forget if you are short on buyers, maybe even got one. You can always negotiate with them against the do nothing scenario, which means that if they don't come up with the right offer, you're not going to do a deal at all. It's important that you work with your advisors to understand clearly what your negotiating position is going to be in what your negotiation strategies are going to be in the meeting . For heaven's sake, don't wing this bit on. Then, at the end of this, obviously, you select your from your preferred short short list of preferred bias that one company you actually want to sign the deal with. Now when you get into due diligence having signed a letter of intent with your preferred buyer, you're going to get a lot of lawyers around. You're going to get the accountants working on the business, checking all the numbers on negotiating over the working capital. Make sure you're ready for that one because that could be very value destroying if you get it wrong. And there may well be groups of specialist advisers writing market reports or environmental of boats or whatever it is that you're gonna have to cope with us. Well, your advisers will handle that, but be prepared for it and then, of course, in parallel with all this. The preparation off the sales and purchase agreement, which is the core document for this that the that the that you'll sign at the end of the sales process will then be prepared and negotiated. Many, many hours of negotiation will go into getting that document right, and it's really important that you spend time and that you've got a great set of lawyers negotiating for you When you get to deal closing. Don't forget that a deal is not done until it is done. It's not signed until the ink is dry on. Therefore, you need to keep your alternatives open and at the same time, be aware that during this whole final process, the other side may well be trying to salami slice you and to reduce the price that they've initially offered to pay, either through bringing up things that come up in Judi legions or just trying to re negotiate. And you have to be really on your toes and ready for that. And resist that. And one of the ways you can do that is by making sure you've got alternatives to this particular by the minute they think they're the only game in town, then your negotiation position is going to be severely weakened, so I hope that helps you to understand something off the sales process. It is complicated. I've done it many, many times on. I'm sure you've got a great group of advisers around you who are going to be able to take you through this process. But if you understand it as well, then it's going to be a much easier process for you and your management team to go through . 4. Selling a Business Transaction Timing: Hello and welcome to this course, which is all about how you maximize the value of your business when you decide to sell it. Now, I want to start off by managing your expectations for the timing off the transaction. So I want to show you exactly what a transaction timeline looks like. Talk you through it so that you have some expectations off what you're letting yourself in for now. Here on the slide, you can see that we have a graph. And on the left hand side, we're measuring the level off management involvement. And on the bottom, we have the timeline in months. Now, let's look at the key points just on the timeline to start off with on. They come in three phases, as you can see preparation, marketing and completion on at the beginning of the timeline, which broadly assumed you're starting actually in December so that you're ready to hit the ground running in January. You need to get to know your advisor and you need to agree the terms of the appointment and sign the engagement letter in January. Then you're into the preparation phase on. The adviser would expect to work very closely with you, your management team and any other key people in your business in order to put together the information memorandum, which is going to be the basic selling document off your business. At the same time, the adviser will be busy, but he will be consulting you, putting together a potential purchaser list. When these two things have bean completed on not before. Then the advisor will start to commence marketing your business on. He will go out on approach potential advisors on. What do you normally do is you'll send them a teaser, which is like a little one pager, no names, no pack drill on the business with a non disclosure agreement. And if they signed a non disclosure given an indicate they want more information than they can receive the information memorandum. If they like the information memorandum, then they may be inclined to have initial meetings with management Now, without getting into too much detail. The adviser may well insist on indicative offers before he offers management meetings. But broadly speaking, in the three months of the marketing you, it can expect but lots of discussions with potential advisors. Potential meetings on then at some deadline point you will want to receive, or the adviser will want to receive indicative offers from these buyers when these offers have bean evaluated, and you may then have a second round of sort of best and final offers with the limited number of people you want to really advance the transaction with. And that may also involve more management time because they may require toe have further management meetings with you and do further due diligence. Then hopefully you get to the point where by the end of May, you can identify the person or the party or the company with which you want to do the transaction. Now this point, the heads of agreement are signed, and then the due diligence on the business on the contractual work begins. So the buyer will be doing due diligence, and at the same time, that's both. Sets of solicitors will be working through drafts of the sale and purchase agreement, which is actually quite a complicated document to get it ready on, then, finally, at some point between June and July, then the deal can be completed. So as you can see, this is a fairly complex six month progress on I'm indebted to Grant Thornton, by the way, for the graph, which I really couldn't better eso I've taken the liberty of borrowing it on. I completely acknowledge their composition off it. So they were That is the transaction timing. So it's really important that you understand the sort of process you're going to get yourself involved in and its complexity and have some expectation of how long this process is gonna take if you are going to maximize the value of your business. Now, in the next video, I'm gonna look a little bit at how you go about planning the sale of your business. 5. Selling a Business Preparing for the Sale: in this selling a business video. I want to talk to you as the owner of the business about how you go about planning the sail off your business. Now, I want you to imagine you're sitting down with your board. You as the owner, your on 100% of the company. Maybe the directors have got a few shares, and you decided that you want to sell your business. And this is the sort of agenda that you're going to need to put on the table, to explain to them and to discuss with them why you decided to take this step. So imagine you're sitting around the board on The first thing you need to do is to conduct a preliminary evaluation off the business itself. So you really need to have a good understanding of what your business does. Its divisions, its operations is profitability by division. You really have to have all that detail at your fingertips because don't forget, you're gonna have to have this discussion with your advisors as well. So it's really important that you are on top of all this stuff, so you will need to go through with each of your reports and each of the parts of your business, the latest numbers, the latest business plans, the latest forecasts and really have a good idea of what's going on, because that's the sort of thing your advisor will want to discuss with you. And I guess the first question you should be asking yourself is, Is your business salable at all? Let me give you an example if the business is entirely dependent on you and your contents. So let's say you maybe you're just a one man band with a couple of VHS, then you probably haven't got a business. You gotta lifestyle income. And you need to make sure that if you are going to sell the business than the business can survive without you or the buyer is going to insist on you staying actively involved in the business, certainly for a period of time while that succession is sorted out, you've also got to look at things like you know, What is your actual business doing? Is it profitable? Is it defendable? Is it growing? Is it the sort of business asset that somebody would actually want to buy? Now? The next question is all about the reasons for the sale. Now, why do you want to sell the business? What is your your goal in selling the business? Is it to take a lot of money off the table? Is it to change your lifestyle? Maybe this is one of many businesses that you've own, and you feel you can take it no further than you being able to bring it so far, and you therefore want to exit. Maybe you've got concerns about things that are happening in the market, and you think it's a good time to move out. Maybe your market conditions have got very competitive, and you can see this is an opportunity to sell to a strategic buyer who's going to actually really benefit and therefore pay your premium price. But you do need to have clear in your own mind why you want to sell the business, and you need to be able to articulate that both your management onto your advisors. The next thing you have to do is look at the historic financial performance of the business and the forecast for the next three years. Now I recommend you need to have a least a detailed month by month forecasts for the next 12 months, and maybe you could have a quarterly forecast thereafter. But don't forget you are going to be selling this business on the foundation off its historic performance, but on the promise of the future growth and profitability that the new owner is going to be able to benefit from when he or she owns the business. So you really have to be on top of your numbers. And it's no good expecting the financial advisor to prepare the numbers, because if you don't understand and are able to defend the numbers in detail, you will not actually instil any confidence in a buyer that, actually you know what you're selling. The next thing we need to look at is the management team itself. Now it's really important that you have a strong management team, both a four level on the secondary level. You need to make sure that you have have addressed all your succession issues, and most importantly, if you are the chief executive and you are coming out the business, that there is somebody who is going to be able to run that business in your place. Already identified within your management team. Now it is possible that when the new buyer comes along, he'll put his own man in. That's one issue. It's more likely that he'll have your chief exact reporting to somebody within his business . But you do need to make sure that when you are presenting your business to a potential buyer, that you've got this fantastic management team in place. Now we come to evaluation. I'm going to talk about how you go about valuing the business in a little bit later, and it's in this series of lectures. But you do need to have a clear idea of your expectation for the value off your business. Now I recommend this is not a hard and fast number. It's probably going to be a range now. I've heard many times a ah, an entrepreneur turned around to me and say, Oh, my business is worth £10 million or $10 million when I say Okay, well, that's great. On what basis? So what? Actually, that's the number I want to retire with, and when I actually look at their business, I have to go back. Even the bad news when she's actually I'm sorry. I think your business is only worth between four and £5 million or for $5 million and therefore, your your understanding, evaluation and your expectations have to be realistic because it's no good having a target figure if the business behind that doesn't actually connect doesn't actually add up to the right sorts of numbers. So be very clear about how you go about valuation and finally, the timing of the sale. Now you need to be, as I've explained in the first lecture, aware of the fact that this is going to take 6 to 7 months this process, and that's with a fair wind. So you need to think about when you're gonna be starting it. And you also need to appreciate that it is going to consume a considerable amount of yours and your management's time, which could be very disruptive to the business if you haven't planned for this. So these are some of the key issues that I really want you to think about and discuss with your management team and your advisers when you're planning the sale of your business. Now, in the next video, I'm going to talk to you about valuation because this is a really critical point, and it's really important that you, your management team and your advisers are all on the same page before you launch the marketing phase off this business. 6. Sale Objectives: welcome back to selling a business in this video. I want to talk to you about sale objectives because it's really important that the vendor, the board, the advisers all have the same sale objectives that these issues have been discussed and they are well agreed. The first question you need to bottom is what is the vendors objective for the sale? So why is he or she or the great group of shareholders selling the business on What do they want to achieve from it? And you do need to challenge them on this, because if you don't do this, then you're not going to be able as an adviser or is aboard to actually conclude whether or not your sales process has been successful. So the first question in this is to understand what is the price expectation, And this should really be expressed as a range that the vendor or the vendor's have for the business. And it is worth if you're advising the company or if you're on the board of the company doing a little bit of homework before you ask them this question, presumably at some sort of meeting, so that you have your own view as to what you think the business is worth, because this is the time to challenge any either over or indeed occasionally, but very rarely under expectations. Off value. There's nothing worse than going through a whole process on then the vendors turning around and said, But I always wanted 10 million for this business and you've come up with offers, which in the 5 to 6 major, because that mismanagement, aww, expectation will almost certainly result in the Bendel's walking away and no deal happening . So you really need to bottom this very early on now. The next thing I would really get them to discuss with you or I would, if you're on the board that you should collectively discuss is your staff and really, how this is going to impact your staff because don't forget the process is long and complicated. There is going to be disruption to the business is going to be very time consuming for the management team off the business. And there's the other issue that if the staff become aware and they may at some point in the process, or you do try and keep it confidential if they become aware off the fact that the businesses for sale this may undermined their confidence in the business so competitive comes along and tries to hire one of your best people away. They may be inclined to g o because they'll be very unsure about their future because the business is being sold. So you really need to have in your mind a plan for how you're going to communicate with your staff, how you're going to protect them from the process, how you're going to protect them if they find out about the process, how you're going to manage comfort, confidentiality and for key people how at the right point in the process, you are going to manage the issue off, ensuring that you retain them inside the business so that you don't lose them, particularly if their loss were then have a material negative impact on the bias perceived value off the business. Now the next thing to discuss is, Are you looking for an outright sale or are you looking for some sort of earn out process now, Of course, from a vendor's point of view, the outright sale gives him a consideration of price, a lump sum or whatever it is now. And he walks. He or she walks away in the earn out on this has to be carefully constructed, but in theory, in the earn out than the owner or the vendor stays involved in the business over a period of time. And part of their consideration for the business is paid in different tranches against normally achieving certain goals of revenues or profits or whatever. So what do they want? How, what sort of deal are they looking for you to construct For them? From a bias perspective, the fact that the owner the vendor leaves straight away is a higher risk deal than if they stay involved in the business. Because once you're inside the business or working with them, then you'll find out if there's any problems. But you're gonna have a period of time where they're involved in the business, where if they don't deliver on their forecasts and you're not going to have to pay them so much money for the business, and therefore it's a lower risk transaction from the buyer's perspective. So you do need to bottom what sort of deal we're talking about. The next thing to talk about is what form do you expect the consideration to be paid in? And this is a very simple either or question. It's either going to be in cash or it's going to be in some sort off paper, which might be a low noted might be equity shares, whatever it is. But what sort of deal do they want? Normally, sellers will want cash for their business. But when there's a very large transaction being contemplated, such as many of these technology transactions, then you'll find that there's relatively small amount of the consideration is in cash on a significant amount of it is in shares. This was particularly true at the dot com area, and, of course, when that happened in that era, ah, lot of people got paid in very highly rated shares and course when the bubble burst. Those shares were worth a hugely less or indeed in many cases, were worthless completely. Today in the transactions you're seeing where you've got very cash rich companies, particularly Microsoft and Apple and Google, then actually they're paying out these transactions in cash on DSO. From the Bendel's perspective, it's a very great, great deal to get because of actually getting that, you know, these very incredibly large sums of money actually delivered to them in cash. Now the final question, which I would invite you to discuss, is, Is there going to be some sort of handover period, or is the vendors gonna walk away straightaway and again? It's quite usual for them to be for there to be a short hand over period so that you can ask any key questions. It really depends on how involved the vendor has Bean in leading the business as to whether they're prepared to offer this, and the buyer will want to demand it. But you do need to understand from them what they are prepared to do as the vendor to make the transaction easier for the buyer. So these are some of the sales objectives that really need to be addressed prior to any launch remarked in process. And it's well worth sitting around the table and discussing these as a board so that it's all agreed documented, and you can provide this information to your advisor so they know exactly where they stand on. If you do that, you'll get your sales process off on a much firmer foundation. Now, in the next video, we're going to take a look at pre sale preparation 7. Selling a Business Valuation: Welcome back to this. Selling a business video Siris on in this video. I want to talk to you about valuation. Now. Valuation is a very contentious topic because the owner of the business will expect to have a very high value on. Any purchaser will try to attribute a low value on. If you're an adviser, you're sort of stuck in the middle because you'll be trying to come up with an objective value and guide the two parties together. Now I'm not going to go into option models for evaluation. I'm just going to keep it to three very straightforward methodologies on they are listed company comparables, comparative emanate transactions and discounted cash flow. So let's start with the 1st 1 which is listed company comparables and hear. What we're doing is going and taking a look in at the quoted companies, which is similar to the company or trying to value and trying to see how the market is valuing these for their revenues, their cash flow, maybe even possibly their balance sheets. Depending on the nature of the business, you have to decide which is the most relevant, but normally or looking at profit and loss account multiples, Onda earnings per share multiples, possibly, and what you need to do is create a matrix of thes so that you can see the averages that come out on this helps to even out any market anomalies. And, of course, when you look at your comparables, you have to be sensitive to the fact that if there is a really outlier there, you need to go and investigate and see why the markets, particularly valuing a company either very highly ordered, very low level. But once you've got that matrix and you've got those averages of these multiples, you can then go and apply them to the business that you're trying to value and see what sort of ranges for each of the different multiples you get from that valuation. So the next way to look at valuation is by looking at comparable mergers and acquisitions transaction. So these air deals, which have already bean done and ugo and find companies from just going looking press sources or google it. There are deal databases which your advisers will have access to, but go and look at similar companies that have bean sold and try to understand what multiples are revenue and profit and assets in cash flow. Have bean applied to those businesses and apply them back to the business. You're valuing what you will find, and what I found in the past is that you won't get complete financial data on all these deals. But if you can get a multiple of profits or a multiple of revenues, and you can pick up these individual data points, and if you have enough off them, you can start to put together a meaningful range off multiples that you can apply back to the business of trying to value. Now. Discounted cash flow is a more complex, but also a more objective method. Because here what you're doing is you build a model of the business, and it has to be an integrated profit and loss, cash flow and balance sheet model, so that any changes in one reflects all the way through. The model in your balance sheet must always balance on the model. Must not be circular, but what you do is you take the cash flow. The free cash flow from the business forecasted out five or 10 years, and I recommend 10 years and then you discount that value to the present on the number you come up with gives you evaluation for the business. Now, there are a number of issues here. One is obviously the assumptions you make in your forecast. Secondly, is the discount rate you use and thirdly, the terminal value you decide to use. Now, don't worry too much about the technicalities of these, but just to say that the value in a DCF model is very much dependent on the assumptions you make going into it. So it is still subject to quite a high degree of subjectivity. One last point to make is that when you're looking at both comparable market transactions and you're looking at historic M and A transactions, then you do need to be sensitive to the market conditions both prevailing at the present and also that prevailed in the past. Because as I'm sure, you're aware, the market goes up and down like a yo yo, and you do get these boom and bust cycles and you will get different levels of valuation. I remember being told by one entrepreneur back in about 2001 in 2002 that his business had to be worth 40 times revenues because somebody had valued it before the dot com bubble had burst at that level three years ago. But of course, market conditions had changed radically, But it was very difficult for him to accept this because I think he really sort of wish that he sold the business three years ago at those very, very high levels. So that's it on valuation, trying to help you to understand how you and your advisers, or how the you as an advisor will go about coming up with a valuation range for the business that is going to be sold now in the next video, I want to take a look at the sale objective because getting these agreed at the outset is extremely important. If you're going to run a successful sales process and you're going to maximize the value off the business that you're trying to sell, 8. Pre Sale Preparation: Hello and welcome back to this. Selling a business video Siris In this video. I'm going to talk to you about pre sale preparation and in fact, in the next three videos after this, I'm going to go into preset preparation in a lot more detail. But I just want to introduce the topic in this video. Now. This is really important. You cannot simply kick off a sales process without having undertaken some form of pre sale preparation, because if you fail to do this, you are definitely going to adversely affect the price that you are going to be able to achieve for the business that you want to sell. Now, the main purpose off the pre sale preparation is to enhance your business and its attractiveness to a potential buyer. And you're doing this by basically cleaning up all the loose ends, making sure that all your documentation on your administration is in very good order that you've got no outstanding issues of any kind on that you've done everything you can from a financial perspective to tidy up and to to optimize the positioning of the business for its current profitability and its future profitability and growth on. By doing this, you're putting your best possible foot forward. But it's like any situation. Any business is always gonna have a lot of loose ends, which which we always meant to do, but they never quite get done. Don't forget that the buyer is going to undertake a detailed due diligence. They're going to send their lawyers and their accountants and their advisers through all your corporate documentation on. They don't want to start finding skeletons in the cupboard. This is the time for you to sort those skeletons out so that when you do present all your information four due diligence, it's going to be a very clean on straightforward process. If you do have an issue, then you really need to disclose it up front. Because if an issue is identified once you're into due diligence and after letters of intent to being signed, then you're definitely inviting the other party to come back to the table and start renegotiating the price off the deal so it don't forget it's really got to be a zwah. One banking advert put it its banking without surprises. It's a deal process without surprises, and it's really important to maintain the trust on both sides so they don't start to think Well, If we found this skeleton in the cupboard, I wonder how many more there are that we haven't yet found. So you have to go through this preparation phase. Be aware, though it will take time, and you should start. If you're contemplating selling your business, then you should actually start now because there's never too early a time that early you start, the less disruption it's going toe have on your business on a day to day basis, and the more time you can take to actually get this phase right. But on the other hand, you do need to be selective. You know, you don't need to disappear down every single rabbit hole. You know there is going to be an 80 20 balance and the prioritization off the things you sought out is important. So deal with the big issues, and then, if you do have smaller issues, then deal with then in secondary nature, or sort of put them on a list of things to do. Maybe as you're going through the sales process, so apply some common sense this because believe you. Me? There's gonna be an awful lot you, your management team and your employees again. I have to do. And don't forget. If you're keeping this process confidential from your employees than either, you're gonna have to give them a cover story. Why they are checking the terms of all the property leases, for instance, or you're gonna have to bring some key people inside the secrecy wall on Let them know that you are repairing the business for sale, and you're gonna have to work with them as part of your trusted team to get the company ready for sale. So that's the introduction to this pre sale business. Now, in the next video, I want to talk to you about some of the things you need to address from a legal and admin perspective in this pre sale preparation phase. 9. Selling a Business Legal and Admin: Welcome back to this. Selling a business video. Siri's. I just like to remind you the whole purpose off this Siri's is to help you to understand the steps you have to take to maximize the value of your business When you sell it on in this lecture, I want to talk to you about the legal and admin preparation that it's absolutely vital that you do before you start the marketing process. Now the whole idea of this is to get all your ducks in a row so that when you come to the due diligence process, you are good to go and you will be able to provide all the documents required on the very long list that the lawyers will come up with. And also make sure and be certain that it is all up to date that there are no loopholes, no skeletons, no problems. So the first thing you must do is make sure that you clear up all outstanding litigation. If there is any very often, there's none to worry about. But if you are involved in in litigation, this is one of the the the biggest value killers you can possibly have because you're basically leaving an open liability, which somebody else is going to have to cover. And if if that is the case, then they will assume the worst case scenario and insist on a retention to cover that amount of money. So it's really in your best interest to make sure the analytic litigation is tidied up. The next thing to do is to ensure that all your patents and trademarks are registered and up to date. And you need to think about the jurisdictions as well. Because if you are operating just in the UK, you may still want to take out worldwide patents. If you've got some particularly valuable I p to stop somebody in another jurisdiction copying that. But you will need to evidence that any I P is protected by patents and trademarks. So if you haven't done anything about it, this is absolutely the time to start doing it. When you come to the Judi Logins process, you will be expected to furnish a full set off contracts employment contracts for all your key staff. So if you haven't got these in place or they're not up to date or they're not standardized and you want some different ones, then this is a really important detail that you need to get addressed now. Of course, if you're going to start changing people's employment contracts, then you're into a difficult discussion with them. But ideally, it's really a question of just making sure that every contract is present on its being signed on. It's all being put in the right file, and it's all up to date, so make sure you go through all those and check those off. The next thing is to look at your property and to look at your title deeds and leases to make sure that one you've got them. Secondly, that they're all properly signed in accounted for on that, there are no liabilities in them. For instance, you may have to if you know he may have a clause in your lease that says, you then have to make good the property at the end of it, and that may trigger somebody to say, Well, actually, the property is a bit of a state at the moment. I really want you to leave her attention against that, so go through a property and leases. If you got a particularly difficult group structure, and you are lots of different companies all over the place. You may want to get your lawyers in and actually reorganized the corporate entity to tidy it up and make it simple. And it particularly if you've got dormant companies. There might be a worry that there's some potential historical liability associated with that company, so it may be worth either taking it out of the group were actually just closing it down altogether. If you've got any minorities or joint venture interest, these could be really untidy and difficult to deal with in a sales process on. If you have these, then you are definitely going to get hit for value. So if you can close them out as long as it makes business sense to do so or by in the minorities, then this is the time to consider. During that, the simpler and the cleaner everything is the better. Remember its banking without surprises. Now the environment is a major area off potential liability, so it's worth having your environmental audit done to make sure that you've got no downside risk in this area. Now. I'm not an expert on environment Lord, it's But I'm sure you can get the idea that if you've polluted the area or there's a lot of waste material around, then you need to clear it up, clean it up and make sure you've got an audit that confirms that there is no residual liability. Don't forget, this is all about minimizing the problems, making everything as clean as possible and therefore giving the other side as little excuse as possible to re negotiate any terms or to put in onerous clauses in the sale and purchase agreement. And if you get your act together, then you'll be in very good shape for due diligence. The best way to do this is actually get hold of your lawyers asked them to provide you with a due diligence checklist for your business and work through with them to get your due diligence materials prepared. Now then, it's simply a question of the sale time off updating them, and that will be a very easy exercise if you're ready for the process. So that's it on your your preparation effectively for your due diligence, I'm going to take a look in the next video at some of the operational things you need to prepare. Your cell will be your business for a sale 10. Selling a Business Operational Preparation: welcome back to selling a business, and in this video, I want to talk to you about some of the operational preparation you can undertake that will help you maximize the value of your business when you come to sell it. The first thing I want to talk to you is about is management, because there are a couple of things which really worth addressing at this early stage that will help you and make life a lot easier for you down the road. The first of these is your succession planning, working out how you're going to organize your senior management after the deal because you may well want to exit the business. And if you're talking to your client as an advisor, then you need to clarify exactly what the management structure is gonna look like when any senior shareholders you know large shareholders have existed from the business. So sitting down and working this out now either with a very small group of your senior management or however you choe choose to do it is a really important part. You didn't, of course, have to make any changes now, but you can identify where you've got weaknesses or where you've got gaps and you can take steps now to sort those out. This applies to at the second level in your second tier management, where you need to review and see where their weaknesses and gaps and see what you can do to strengthen it. Because when somebody comes to review the business and wants to pay top dollar, you want to be able to show them that you got a first class team running the business and an excellent strong team at the second level as well. On this will give them great confidence that they're making a good investment by buying the business off you. Let's look now at revenue enhancement, because what you obviously want to show is the greatest revenue growth and business growth in this current year because it sets you up very nicely for the sales process because it shows year on year growth on one of the things you can look here, look at here is the timing off sales, and in particular, if you've got stuff in the pipeline, which is about to close, make sure you get it signed up and make sure you don't have a long pipeline off Contra 10 Shal contracts, which are not signed and not closed. You really want to get your guys onto it and get make sure that you have a Aziz much revenue recognition done in an appropriate way, as you possibly can. It's also important to consider if you're looking at profitability, you're pricing and margins. What can you do across the board in your business that is going to improve the profitability? Well, of course, by changing your margin structure, adjusting your margin structure or really taking a very close look at any discounts you may be giving if you can. Hard in that whole area up, it's going to go straight through to the bottom line. Now this is very top of the P NL account, focused and very deliberately because clearly greater revenues at better margins is the top part, which is going to actually set you up for greater profitability. So let's look now at operating costs because that's the next segment off your PML account on. There's quite a lot here you can do that will improve the e bit d a that people will look at. The first thing to do is to go through and basically eliminate any costs which are not essential. And it's really worth going through your fixed and variable costs and seeing where there might be wasted where their budgets, which are being spent, that don't need to be spent or can be cut back. And it very good. I'd opportunity here is to look at your R and D or your advertising and say, Well, actually, do we need to spend the money we're spending, or can we reduce it in some way? So have a really hard think through your entire cost structure to see what you can do to save it. There are also some non business related costs that really do need to be tidied up and to ever These in particular, which are big red flags at the time of doing a deal, are when you've got your wife or your Children or your arm, so your uncle's or whatever it might be on the payroll. So get the relatives off the payroll in the nicest possible way. But if you're serious about getting top dollar one, they're taking money out the business, which is reducing, or anybody and if somebody's gonna pay your multiple of that, then you really want t to save that that cost on. Get that money back into the value that that somebody else is going to pay you for your business and equally, if you're putting personal expenses through the business, stop doing it because again, for every pound that you're reducing your P nL, if somebody's gonna pay you £5 is a £5 multiple of the bit d a. Then it's really, really short sighted. So you need to tidy up and get a lot more disciplined about how you candle costs. Now the course. This is just a sort of touch on on the top of the iceberg, but the message I want to get across to you it is really important to go through a thorough cost exercise. Go through your whole coastline in your pin account line by line, and work out. If you've got the best deal of your electricity or heating. You know your postage, whatever it is. What can you do to tighten up your cost base and therefore improve your profitability because you're going to get this back five times over? At least if somebody pays you five times a bit d A at the say the sale point. So those are some of the things you can do on the financial side in terms of your costs on your revenues. In the next video, I want to talk about what you can do in terms off reviewing the assets in the business. 11. Selling a Business Financial Asset Review: welcome back to selling a business. This video series is all about how you can make sure that you maximize the value of your business when you come to sell it. And in this video I want to talk to you about the asset review on the sorts of things you can do with your business assets that will put you in a position to get the very best price . When you come to sell your business, the first thing I want to look at is the fixed assets in your business now bearing in mind . A lot of these may being built up over time. And if you've been running a business quite a long time, it's definitely worth going through and having a close look and seeing what you have in that bit in the business. And, frankly, what you can sell off, because if you've got redundant assets sitting there, which underutilized, then sell them and take the cash now because when a buyer buys the business, you won't get value for them at the time. But then they'll take the money out of the business when they sell them afterwards. A classic example of this is when a an organization bought a business and they found it had a very undervalued building, and it found it had some very valuable art in the building, and nobody picked up on the value of this art. And as a result, the buyer got all the value of the art, and it considerably contributed to the purchase value costume off the company that you're quite so This is something it is definitely worth doing because you can actually drive quite a lot of cash from it. Look, particularly assets in your business. I've just quoted what one bigger example artwork, which actually has got a nonbusiness use which you can sell today on otherwise, won't get value for at the point of sale. And that's definitely worth a review and a clear, out look also at the book value off the assets that you've got now bearing in mind, some things go up in some things, go down. The most obvious of these, of course, is freehold property. And if you've had a business move 20 or 30 years, the freehold property on your books, maybe at a very low low valuation compared to its open market value and you don't want to get caught out in the sale process by actually having an undervalued asset which somebody else can then take advantage off. And of course, finally, if you've got investments in the business, maybe it's just a way of dealing with some of the surplus cash. Then this is the time to actually realize those and then dividend out the money from the company. At this point, you don't want tohave assets in the business, which are not directly contributing to the benefit off the business. When you come to look at your stocks moving now on to current assets, then there are a couple of things to look at here. First of all is the level of provision you've got against your stocks. Are they appropriate? Are the are you over provided provisioned for And should you actually be reducing the level of provision on equally? If you've got old stock, which is basically sitting around on the shelves, then clear it out, realize it, sell it, liquidated. What have you do but don't have extra stock levels which you don't need really tightened up on your whole stockholding policy. The next thing to look at is debtors now. One of the things every business has I know is some old debts which have not going not being collected and probably never will be collected. And if that's the case, then is definitely worth writing those off and clearing those out because it's only raising questions. One about the financial management of the business. But equally, you know, if it's not ever going to be realized, then get them off the books. And actually, don't overstate your debtors. You can, however, improve your debtor days by basically collecting the money from the people who owe you money sooner on. This will tighten up the working capital in the business and actually make your business look a lot better. Run because the money in a debtor is basically owed to your business and it's sitting in the BET Debtors bank account on. Really, What you want is for that debt to be paid and to have the money in your bank account. And the more you can do this and the more you can shorten your debtor days, then the more liquidity you're putting back into your own business. And, of course, if you genuinely have got some bad debts that you know you're not going to collect, and you haven't made provision for them than this is the time to make those provisions. Now cash in the business is, of course, important. I'm going to talk about working capital in a minute, but definitely have a look and see if you're holding mawr cash than you need to do. Say, we'll talk about working capital. You'll be able to identify what it is the appropriate level when you deal working Capital review. But if you're holding too much cash, then you should consider dividing it out before you go into the sales process, because you're just going to end up in an argument where the fire the business is going to try and retain as much of that cash for himself without paying you for it. So definitely consider a pre deal dividend payment to shareholders to bring excess levels of cash into line with when they need to be. So let's talk about working capital. This is one of the most contentious areas, but basically I want you to think about working capital like the oil in the engine of a car . This is the capital that the money in the business that that lubricates everything and makes it go round on The first thing I strongly encourage you to do is to commission your own working capital review so that you can understand where, what the right level, in your view, the right level of working capital for the businesses. And if you've got too much capital in the business, as I've just said, then divvy it out. So I want you to think about the maximum on minimum amount of capital you need in your business, and that's the sort of range you need to be working for and definitely divvy out any excess that you don't need. When you do your working capital review, you definitely need to look on the seasonality of your business. I recommend you do it for at least a 12 month period, and probably that the 12 months back from where you are now, because working capital is definitely seasonal. If your business is seasonal, and if your business is growing through the year, you'll also see the working capital requirement increase as well. The monthly timing off your working capital calculation, funnily enough, does make a big difference because very often a lot of things are paid out at the month end and therefore the amount of working capital that's circulating around in the business varies through the month and it's worth looking at. And I've seen this happen in deals where, actually, the Working Capital review, when calculated from a mid month point, came out with a much higher requirement than the Working Capital review conducted at the end of the month. So definitely consider where you measure at what point in the month to month, because it will make a difference to the level of working capital. Don't forget when you come to negotiate a deal with a buyer and a seller. This is one of the most contentious areas because as a seller, you are going to be trying to leave as little working capital in the business on. The buyer is going to try to get as much working capital in the business, and I've seen private equity firms try very hard to keep excessive levels of working capital of the business because basically that cash then pays for the deal, so you need to get your ducks in a row with your advisors and make sure your accountants really understand working capital. I have to admit sometimes some of these very small provincial accounting firms, and I'm not naming names. I'm not knocking any individuals. They don't understand the importance of working capital in an M and a deal. So getting in a bigger accounting firm to be on your side or indeed, making sure your audience auditors are up to speed and if they're not changing them before you get to the deal is a really important part of making sure you're well set up toe have that negotiation when you come to the point of the deal, where there's the big argument over working capital because it always happens, don't forget. Excess working capital is a source of cash for your buyers. So that's it for the Asset review. So now I've really concluded what I want to say about the preparation. You can do a head off the deal in the next lecture. I want to talk to you about the information memorandum 12. Information Memorandum: welcome back to selling a business where we're discussing all the things you can do to maximize the value of your business when you come to sell it. And in this video I want to talk to you about the information memorandum. Now, for those of you who are not familiar with this document, this is the selling document which is going to be prepared by your advisor or by the advisor to the company. But it's a document that the management is very much involved in preparing, and it's something which, ultimately the management have to sign off on before it can be distributed to any potential buyers. So regard this as your sort of documentary shop window for the sale of your business, and it's something which you need to spend some time on and pay particular attention to. In this letter, I want to give you some key points to bear in mind when preparing this document, which will hopefully help you to prepare an even more effective information memorandum and believe you, me, I've prepared dozens of these things. Eso I do know what I'm talking about, but I want you to produce the most effective one, which will help you to sell your business and get top dollar for it. The first thing to bear in mind is that you really want this document to emphasize the strengths of your business. So you if you had a checklist of all the things that you think your business is excellent at on all these key strengths, then you want to make sure that every single one of those points that you write down on your checklist appears somewhere in the information memorandum, and that's quite a good way to do it. Brainstorm all the strengths on there, Make sure their reflected in the document very often in businesses, there are aspects of the business, which are really valuable and really interesting, but a lot less obvious. And it might be some obscure I p or a pattern or some particular market or some great customers. Whatever it is, find it and bring it out and bring it to the full. And by doing that, you're going to be teaching prospective buyers things about your business that they won't otherwise find. Of course, the future is all about growth, so you need to make sure that and I'm thinking out SWAT analysis opportunities, threats that these opportunities, the prospects for growth are really given a good showcasing, and that's absolutely critical. When you're trying to explain the revenues of your business, then it's very helpful to be able to show the different components off the profit stream and show what contribution they're making to the business overall. Now it may be that you're gonna have to make some one off adjustments to those numbers. But if you can produce a sort of like a bar graph and and segment it and show the individual segments off, profit on what they attribute to on a normalized basis than that could be very helpful to show where the real value in your business exists off course. If you haven't already brought in cost savings or indeed synergies, then you may want to highlight in the information memorandum where further cost savings might be achieved because you're tryingto explain to them why your forecast profitability may be higher next year than is this year, and if is a strategic buyer, then obviously there are areas of overlap where synergies can be achieved now. Very often it's is for the buyer to identify the synergies, but you can certainly identify where cost savings can be made. And if you have identified them well, frankly, why not make them now? Now? Another way to look at the information memorandum is that you are preparing a document for particular type off seller so you might want tohave a version of it that you send out to strategic buyers and the version of it say that you keep for financial buyers or maybe version, which is for domestic buyers and the version that are for international buyers, and you'll have slightly different emphasis in the different documents. Now you don't want to make the job too complicated, but if you are going to go for different segments off buyers and we'll talk about this later, then definitely consider whether you wanna have a tailored information memorandum, which hits the points and the buttons that that particular group of bicycle particularly going to be interested in. The last thing I would say about the information memorandum and this is something I absolutely hate seeing is keep away from hyperbole. Keep all the hype out of the document. This wants to be not dry. You're definitely selling your business, but you want to make sure that it's not like reading like some sort of grossly overstated, cheap sales document. It wants to be very professionally and very not gonna constrained manner. But But it was to be put across in a zey very balanced view whilst hitting the high points . But without lots off, you know, cheery enthusiasm on unnecessary hyperbole, which, frankly, just looks unprofessional. So there's some key pointers on getting your information memorandum as effective as possible, because this will definitely help you to maximize the value of your business. I hope you found that helpful in the next lecture. We're going to talk about how you go about identifying the best buyer for your company. 13. Selling a Business Identifying the best buyer: Hello. Welcome back to this. Selling a business video. Siris In this video, I'm going to talk to you about the importance of identifying the best buyer for your business. Now it doesn't matter whether you're a financial adviser or whether you're an owner or whether you're a member of a board. You'll have a common interest here in understanding the points I want to make about finding the best buyer on. There are certain characteristics which I'm going to allude to in this video Andi, which you can bear in mind when you're evaluating individual potential buyers and two to see how they stack up against these criteria. Now the first of these is all about finding a buyer that can pay a premium for your business on that is going to be a buyer who will get a strategic benefit on who will therefore be prepared to pay for that benefit or indeed even pay to keep you out the hands of another competitors. So for somebody who's going to get an extra benefit from buying your business, then that is the sort of by you want coming in and paying that extra bit of money on this could be an international buyer who wants market entry. It could be a competitors who wants to consolidate the market. It could be another company in the same geography who wants to come into your market and therefore expand their product range. Depending on how you look at it, you can cut this different ways. Whatever you do, you want somebody to buy your business who can add value to it now. This is where financial buyers frankly struggle to make their argument. In my humble view, however, a corporate buyer does have management experience, does have knowledge of the market, is active in that market and can therefore add some value to the business. And that by is likely to be able to pay mawr all things being equal than somebody who can't add value. Finding a via who is acceptable to your existing management team is not a deal breaker, but it's certainly gonna make things a lot easier after the deal has happened. So having a buyer who's got a base similar cultural fit, who is going to respect your management team, they often keep them on are not whole swathes. Make them redundant is something to bear in mind, and I have seen big conflicts happen when the two management sides, all the two cultures, are very different. So you want to bear in mind that when you break the deal to your management, is this going to be a deal that they're gonna enthusiastically welcome? Or is this one where they're going to jump back in horror and think, Oh, my God, not them. Try to avoid business conflicts. If you've got a buyer who is got too much overlap with you, then you're going to find yourself in a situation where there's gonna be a lot of redundancy on a lot off loss, you know? And this is something you absolutely want to avoid if you can. You want to try to keep away from buyers who are going to bring regulatory problems. And I'm talking now about you know, companies who may be operating in difficult areas, it companies who might be coming in from difficult geography ease or, indeed, companies where because of the combination of your two businesses, you're going tohave um, maybe in a monopolies issue or some sort of regulatory complication, which is going to make the deal harder to do. And if you can find a buyer where you don't have this complication, then you're gonna make the deal much more likely to happen. And because of that, that complexity is likely to have a cost impact, and therefore the buyer without that complexity, may well be able to pay you more for your business. If you can find a buyer who doesn't need to get regulatory to get shareholder or other approvals for the deal, then it's going to make the deal process a lot more straightforward. Because if the buyer does require shareholder approval, then the deal when you signed the deal, it will be subject to these conditions, one of which will be shareholder approval. And if they failed to get shareholder approval, you're back to square one. But your deal then might be out in the market, so you should value a buyer who has not got to go through this step now very often. If you have a very large company and they're buying a relatively small company, they won't hit the thresholds which mean they have to go to shareholders if the companies are more equal size than there, so thresholds may well be triggered. I'm not going to try and explain them to you because they're different in different regular , you know, different regulatory markets. But just bear in mind that some deals, particularly if they're public companies making the acquisition. Some deals will require these shelled approvals, and if you can find a buyer who doesn't require them, then you should regard that is a better quality buyer compared to the company that does. And finally, the question of a due diligence, the less due diligence that buyer insists on doing the better. Frankly, now, from a bias perspective, he should be doing very thorough gee delusions. But if you've got a buyer for whom the deal is, perhaps those would be small on they're prepared to do. Lest you digits, then that's a big tick in the box because it's going to make the deal a lot easier to do. Whatever you do, don't assume that buyers are going to come into this and not want to do any due diligence, and you definitely want to have done all the preparation and got rid of all the skeletons and tidied everything up that I've been talking to you about in this series of lectures to make sure that the due diligence goes off without a hitch. So those are some of the things about identifying the best buyer. Because if you can find a buyer that meets a lot of those criteria, then you're going to find a buyer who campaigned more for your business. In the next video, I'm going to take you through a little bit of bias segmentation to show how different groups of buyers can be split up on the sorts of criteria you can apply to them. 14. Buyer Segmentation: welcome back to selling a business. This is all about how you go about maximizing the value of your business when you come to sell it. And in this video I want to talk to you in a bit more detail about by a segmentation. Now I've broken potential buyers into different groups, and I just want to briefly highlight the pros and cons off each type of buyer. So you have getting your mind. You know, when you're faced with a particular time by you know what they bring to the party and what the drawbacks are to that particular type off buyer on the first of these is to talk about your direct competitors Now. Clearly, there are opportunities for synergies. Andi. Potentially, it's easy to get a relatively swift transaction done because they're familiar with the business. That due diligence should be more straightforward and because they understand the business that you're in, the whole deal should beam or more straightforward to get completed. However, there is the big issue that they may just be there to fish for your commercially sensitive and confidential information, and this is something you got to be very careful about, and I've seen this happen on quite a number of occasions and very often there's a whole segment off due diligence material, which is actually held back from these sorts of buyers until they're much further into the process. Really, when they being confirmed really into the last group of bidders, because there is a risk that you're going to lose a lot of your competitive advantage of these guys get hold of the information, which you deemed to be commercially sensitive and particularly valuable for your business. The next group is companies in related industries. This is where a company is coming into your market, you know, if that say they make Krems and you make push chairs on, they're going to come alone ongoing overlap with you Maybe that's not a great example, but I think you know what I'm talking about. They will very often be prepared to pay a premium to get your expertise to get that market entry in that market position. But because they are less familiar, probably with your business, they can be slower on. There's always the risk that they'll think Well, maybe we don't need to do this a bit strategically dodgy on day actually pulled back at the last minute. So be aware of that with these types of buyers. Nbon b i bimbo Well, for those you don't know what that stands for. Management. Buyout management. Buy in on a buy in management. Buy out the 1st 1 is a Nembe. Oh, it's fairly straightforward. The manager by the existing management by the business out. The FBI is where a new management team comes in and buys the business, and the last one is where there's a combination off new people coming in and working with the existent management to buy it out. I have to say, from my experience, MB eyes are more difficult to do and are seen as higher risk by financial investors, so they're less inclined to support these. They really like management buy outs because they believe they're getting the inside track with the management team Now. Typically, you'll get less warranty demands. In a transaction like this, they are going to be dependent on bank funding. Andi, there is potentially evaluation issue, which is also tied up with the management relationship issue. Let me explain what I mean At some point in this transaction, that management team are going to switch from being sellers to being buyers, they will have the inside track on where all the skeletons are and be able to provide the information to the financial investor, which will enable him to make the argument producing the price. At the same time, you're going to find yourself with a split board where effectively, although you start up on the same side of the table, you end up sitting opposite each other and negotiating against each other. So this could be actually quite difficult to achieve from the seller's perspective, and it's obviously a very attractive position. From the buyer's perspective, let's look more directly at financial investors who are coming in and not you doing a deer actively with management, although obviously they're going to take the management on, they can move very quickly. They do have their system set up to be trans actors, which is great Andan Bay, often ing in many of these deals, the vendors have the opportunity to leave some money on the table on if the business is going to keep growing, then they might get a second payout in three or five years time which is like a double bite of the cherry, which will be great because they've taken their money off the table. They've stopped working and somebody else is doing all the work, and they're still going to get a reward, which is lovely against these investors. Well, clearly, there are no synergies, although you can find situations where a financial investor will have a core port failure company and he may come in and buy your company in order to add it to that company, in which case synergies would apply. And clearly there are financing risks because these financial investors do need to bring in debt to the business to make their financing structures work on. That is subject to the banking and the financial conditions, which prevail at the time off the deal. Now it's possible for your suppliers or indeed, your customers to either vertically integrate will reverse vertically integrate by buying you. So if a supplier basically moves down the food chain and you know basically integrates with your business or customer, decides to go backwards and acquire you, then that could be great. They know the market. They will certainly have synergies, which is fantastic But of course, there is the big risk again off confidentiality, because these are people with whom you are trading, and if they are on an information hunt, you can seriously compromise your position. So you do need to be very careful how you handle commercially sensitive information when suppliers or customers come knocking as potential buyers. Now, overseas companies, companies looking to move from their domestic market into an overseas market and come and make an acquisition of your business can be great buyers. They very often will pay a significant premium for control, which is fantastic. However, they may find it more difficult to transact because they're gonna be a long, long way away. So that's going to take more time because you gotta keep on having visits and people have to fly over and all the rest of it. And depending on where these buyers come from, there may well be cultural challenges, and I'm not in any way putting down different sides. But the Brits and the Americans found in the past, you know, we are separated by a common language, and our business cultures are very different, so don't assume just because they speak English that they're necessary necessarily going to be on the same cultural pages you are. Although I've always found it great doing business with Americans because you normally you know where you are. And they do tend to be very smart negotiators. So that's it for looking at the buyer segmentation. I hope that's shed some light, which will help you to understand how to treat different buyers so that you're in the best position to maximize the proceeds for your business. Now, in the next video, I'm gonna take a little bit of a further look at the due diligence process. 15. Selling a Business Due Diligence: hello and welcome back to selling a business. This is all about helping you maximize the value off your business when you come to sell it . And in this video I want to talk to you a little bit further about the due diligence process now due diligence, which is a phrase which is a technical term. But but it doesn't always mean anything to anybody who's not familiar with it is basically where the potential buyer will go and check by going through all your business documentation exactly what it is that they are buying. So it's a process of verification that you need to allow them to go through to convince themselves that they're actually going to get what they you tell them. They're gonna get in return for the payment they're going to give you on the starting point for this is going back and getting your auditors notes and files and to a certain extent, making those available in the data room, which I'll talk about in a minute now when you're running a due diligence process, be very clear about the information you're going to provide. Your lawyers will help you with a checklist in your accountants will help you with the checklist on DSO. Preparing that information is relatively straightforward, but inevitably in any process. And I've seen this happen many times. The other side come back with a lot of questions, and you have to be judgmental about the questions that asking you on be prepared to say no , hang on a second. That's too much of this stage now. It's not to say you're not going to disclose it in the later stage, but if it's particularly commercially sensitive, then you may wanna well, want to hold back Now. Where you put your diligence together is that you make the data on your whole business. May you make it available in what is called a data room Now, in the old days, and I can remember when we used to do this, you basically find a room which might be at the auditors. It might be at the lawyers, but it's normal at one or the other, and you provide all the files on all the hard copy into that room and the new control who had access to it and you wouldn't let them take copies and all the rest of it now. Of course, in the 21st century it's all gone online, which is great, because it means that you can have more than one potential buyer going through the information simultaneously, and you can more easily control access and copies and all the rest of it. And of course, it's a much more straightforward process toe up Bloedel this stuff than to make endless amounts of photocopies to fill out a data room. So that's what a data room is. Be aware that your potential buyer is doing commercial due diligence, and I have mentioned this before, but it is important to mention it again that, you know, you do have to be very careful about what commercially sensitive information you allow to be made available at what stage in the process. Because very often you get people joining the process who are either competitors or their on some sort of information hunt, and you want to make sure that you're not just providing them with a lead information, and then they're going to disappearance. Actually, no, we're not interested. We don't want to do the deal. Take the process any further, so I stress protect commercially sensitive information is really important on the last point I would make is that when you're doing or you're in a process and you're working with another party, depending on the circumstances of the deal, but particularly if you're being left with a steak or you're there's an earn out whatever then asked to do your due diligence on them because you want to be just as assured that you know if they're going to be giving you their stock or that paper or you're gonna leave left with steak that actually you know they are everything they say they're and then their good shape. And don't be afraid to push them hard to get confidential information from them to make sure that they are everything that they say they are. So that's a few words about do due diligence, which I hope will keep you on the straight and narrow. And in the next video, I'm going to talk to you a little bit about the deal. Process itself 16. Key to a Successful Deal: Hello and welcome back to selling a business in this video. I want to talk to you about some of the key points that you need to bear in mind to make sure that you get a successful deal on. Of course, the deal we want is the one that maximizes the value for your business. So the first thing I would encourage you to do is to really understand the reasons why the business is being sold on. This needs to be understood by you, your board, the advisors, whatever role you're playing in the deal. Make sure that these reasons are transparent to everybody on. Because if you understand the motivation behind the deal, then it makes it much clearer to understand how a lot of other parts of it fall into place . The second point I would make is really prepared your business for sale very carefully. I've talked a lot in this series of videos about all the things you should be doing before you even start marketing the business. And if you get that preparation right very early on, you'll save yourself a heap off work and difficulty and trouble and potentially negative negotiations, which will adversely affect the price of your business. So really, get your preparation done very thoroughly. Now. Be realistic both about price and about timetable. I've talked about valuation of the business, and I've talked about how the timetable could be six or seven months. But I've also talked about how important it is to stick to the timetable and to really work very hard not to let deadlines slip. So if you can manage that process, your chances of getting a deal done in good time and a good doubt good value are considerably greater. When you come to identifying purchases, Don't just look at the obvious ones. Try to think laterally about where other purchases might come from, whether it's relating geography, ease or in a company in neighbouring industries or different types of financial investors. Whatever it is, think hard about where these bias, because you you may unearth the this this best ideal buyer with a little bit off homework. Don't just stop and finish with the obvious list. It's really important that you control you run some sort of auction when you're selling the business, even if you're running it against the do nothing scenario and actually in negotiation, only negotiating with one party. But the process as a controlled auction is most likely to create the competitive tension that is going to lead to people bidding against one another to get your business and therefore get you the best price for it when you're in that negotiation, if you can understand the objectives off the other party, then you'll know what points to concede on what points to hold back on in the negotiation. So really understanding where your your adversary, where the other party where the purchaser is coming from on what's important to them or what's not important to them is gonna be critical in getting a good negotiation and a deal that both people will be happy signing up to and hopefully one that's got a very big price ticket attached to it on the final thing, I would say, is under promise over deliver, Don't do it the other way around. So if you've got that, they ask you for a stack more information than lead them to expect, for instance, it's going to take you longer, but it does and then deliver it in a shorter time. That's just a very small example. But if you hold that adage true all the way through, then your chances of getting a successful high ticket negotiation and sale of your business are going to be that much greater. So that's it. Some tips for getting a successful process run for the sale of your business. I hope you found this. Siri's very helpful. I'm just going to now go through a quick summary and wrap up in the next video. 17. Selling a Business Deal Process: hello and welcome back to selling a business. This is all about how to help you maximize the value of your business. When it comes to time for a sale on in this video, I want to talk to you about some of the points you should be sensitive to when going through the deal process. Now, I'm not going to talk to you about the process itself. I've already given you an outline of that right at the beginning of this Siri's or videos. But I'm going to highlight some points which I think are important for you to bear in mind when you're going through the deal process and will hopefully keep you ahead of the game and to give you a negotiating edge that when it comes to dealing with the other side, because at the end of the day we want to maximize the proceeds on. The first point is to make sure that at all times you maintain the sense off competitive tension. The the potential buyers want to really be made to feel that there are other interested parties out there. And frankly, you do that and your advisors do that even if they're a bit thin on the ground on Don't forget there's always the do nothing scenario. You can always use that as part of your negotiation. We say, Well, if you know, if the prices and right, if the deal is right, well, we're just going to carry on as we have Bean. So there are ways to create that tension. Obviously, the best way is to get three or four companies vying for the opportunity to acquire your business. But that's not always so easy to achieve. It's definitely worth finding out what your preferred purchases agenda really is. What is their motivation for doing the deal? And if you can get underneath that particular point, and it's really a question of really talking to them a lot, and hopefully they'll let slip a few interesting snippets off information, which you can then latch onto. But if you understand what their key motivation is, then you can use that in your negotiation to leverage that the price and move the negotiations in your favor. Having said that, what you want to make sure is that you provide them with all the information they need, and you are as up front as you possibly can be so that there's as little wriggle room after the heads of terms assigned that been, if every negotiation. So the idea is that when you get to the letter of intense stage where they basically put her on offer on the table, which is agreed subject to contract, that they have got all the information they need and they cut, come back to you later on and say our But you didn't tell us this. So we're gonna have to relook at the price you need to bear in mind the likely form of consideration that you're going to get. The ideal consideration in most normal cases is cash you might be prepared to set to accept their equity. You should be very circumspect about accepting debt or loan notes from them because you're going to find yourself if anything goes wrong as a subordinated creditor to that particular business and your chances of getting your money back of probably going to be quite small. So think very hard about what forms of consideration you are prepared to pay to accept. And I would always start on the basis that cash is king. Look very carefully when you receive offers at the indicative offer stage at the conditions attached to those offers because they will very, very materially, and you need to evaluate them very carefully to get the right balance. And, of course, you don't have to accept any off them, and you can go back and challenge them and negotiate them. But you do need to look at them very carefully and understand exactly what they relate to. Now. Reps and warranties are something you'll hear a lot about in the process, and basically, these are the representation Czar warranties that you as a seller give to the buyer about the business and the in the ideal scenario, you want to give us you as possible. The buyers will want as many as possible, and you really rely on your lawyers to do a good job to keep these under control. But you need to be aware what they are. I've said it before I say it again. If you have surplus cash in the business, then you need to divvy it out. Although, of course, there is a tax advantages in some jurisdictions whereby if there is surplus a cash the and the buyers are prepared to buy it pound for pound. Then, instead of paying income tax on it, you can pay capital gains tax on it, which might be lower. So there's a slight game to be played there, but you do need to be careful. Make sure you disclose all price sensitive information before you get into exclusivity, and that's a really crucial point. You do not want to leave any skeletons in the cupboard because it will damage trust, and it will lead to another a round of negotiations on price and it's only going to pushing one direction, and that is down when you get to the L O. I stage. If you've got any important points you want in the in the sale and purchase agreement, then you want to get them into the letter of intent. You want to negotiate them before you go into exclusivity with a single preferred purchaser . So your letter of intent needs to really be a a framework of a comprehensive framework that you can then give to your lawyers to fill out with all their legalese. So don't leave any key material points out off that negotiation and hope you're going to get them into the sale and purchase agreement at a later stage. If there is any good news about your business that comes out during the process, then release it. Put a press release out, make sure they're aware of it. If you want a big contract or you know something happens very positively in the market, then you want to make sure that your potential buyer is aware of this and make sure that they consider it in. When they're, you know, bring taking into account what they're going to be prepared to offer for your business. So don't hold back on. Good news on the last point I would make is timetables, because timetables in a deal process tend to slip and you have to work really hard. And financial advisers have to work really hard to keep potential buyers feet to the fire to make sure that they stick to the timetable as dictated. And this process can go on for months and months and months if you don't work very hard to keep control off the timetable. So those air a few points that you need to bear amount about the deal process and I'm going to wrap this syriza videos up with a few points that I'm going to share with you about the keys to actually creating a successful deal. 18. Selling a Business Summary and Wrap Up: Hello and welcome back to the final video in this selling a business. Siri's in this video. I just want to wrap up and summarize the various key points that we've made going through this video. But firstly, I'd like to congratulate you on completing the course because that is, in itself an achievement on. I really hope you've taken a lot out of this course because what I'm trying to do is share with you based on my 28 years of experience, the points that you need to take into consideration, or at least many of the points you need to take into consideration when selling your business to try to make sure that you don't make any major mistakes, you don't fall in into any pitfalls that you know how to manage your advisers. And at the end of the day, you achieve the best possible price for the business you're selling now. I started off by just taking you through an outline off how the process looks on the transacting transaction timing. So in a sense, we were setting the scene. I encourage you to think about a number of key points you needed to consider when you were planning the sale process and hopefully you taken those on board. I tried to explain some of the complexities and difficulties involved in valuation because it's really important that everybody's on the same page when it comes to valuation. If you've got much higher expectations than your advisors can deliver, then you could go through a very long and complicated process, which is going to fail because, in your view they won't have delivered the value that you expected. So you've really got to address this very early on and get everybody's agreement on the valuation range that you're gonna find acceptable. That's not to say, Of course, you don't try and exceed it, but if they do get offers within the range, then you need to regard them as acceptable rather than in any way underachieving. I then explained some of the key sale objectives that you needed to have in mind on Do you needed the key points you needed to address around the objectives of the sale to make sure that everybody was on the same page. Following that, we took some steps to look at what you should be doing in the pre sale preparation phase and in particular, a lot of this is to do with the preparation off your business for the due diligence process . And I took you through some of the key points in legal and admin through operational issues , particularly financial ones, and also balance sheet related asset issues, which you could do to really tighten everything up on these air really, really important to do, because one you can actually release a lot of benefit in the short term for yourself. Secondly, your business process and your old business operation should tighten up and improve. And, of course, you're putting yourself in the best possible position for a potential buyer. Then we started Look at some of the deal process issues, so I talked you through some of the things you needed to bear in mind when putting the information memorandum together. How you go about identifying the best buyer and I took you through some details of of what sorts of buyers could be out there. So we talked about bias segmentation. Then I talked about some of the points you had to bear in mind when actually going through the due diligence process to make sure you stayed on top and in control off that process. Then I talked equally about some points to do with the deal process. So things that you needed across the whole of the six months to bear in mind to make sure the deal process was really tightly run on well controlled. And finally I left you with a few key tips about what you need to do for a successful deal . So I hope you found this really helpful. My name is John Colley. You can see my website at the bottom. JB de Cali dot com If you've got any questions for me, email me John at j b d Cali dot com. And if you want my help to sell your business or to prepare your business for sale than definitely reach out and contact me and I'll be very happy to talk to you. So that's it for this video selling a business. How to maximize the price for your business. And I hope you found this a really helpful Siri's off instructional videos, which is going to help you to achieve exactly that objective