Thinking of selling to a trade buyer? Do something now

Thinking of selling to a trade buyer

If you plan to sell to a trade buyer one day, now is the time to take action; either to prepare your business or to go to market if you’re ready.

Why now? At present the UK economic climate is okay, but no matter where you sit on the Brexit spectrum you’ll agree that there’s uncertainty about the short to mid-term future. This extends to uncertainty about the tax regime under a possible future Corbyn government. But more positively, we see plenty of trade and financial buyers in the market with money and acquisitive intent. Possibly a sellers' market?

How to sell to a trade buyer

It’s like courtship. It should be about the fundamentals of your business, but if you’re out of shape and make a poor first impression it’s not going to help.  Even if you don’t plan a short-term exit you should be grooming your business at all times. People talk about grooming for sale, but think of it as grooming to make your business worth more - and start today! Discuss it at the board-table, read widely, attend seminars (disclosure we’re running some soon that will help) and make it part of your business planning process.

Making contact

You’ve done some grooming and your business will make a great first impression, and make a strong acquisition candidate for a strategic buyer. How do you approach them? There are a few approaches that can work, and the two ends of the spectrum are a 'Negotiated Sale' to one buyer and a 'Controlled Auction' to multiple potential buyers. 

Negotiated Sale

Imagine that a buyer approaches you out of the blue. Good deals can be done this way but it’s hard to get the negotiating edge that a real competition would give you. If you are going down this route it’s important to be clear about your walk away price – don’t get caught up in the thrill of the deal. Get an adviser alongside to get give a negotiating edge. And see if you can understand the buyer’s strategy - if you can help them value the strategic benefits this can drive a higher price.

Controlled Auction

To adequately describe the auction process needs a few posts on its own. But the headlines are that this involves covertly and confidentially marketing your business to a good spread of potential strategic buyers. The aim is to get competitive tension amongst multiple motivated buyers. And it really does work – we’ve seen wide spreads of offers with the best multiple for the least attractive. And buyers can increase their offers significantly as a result of the process. Our upcoming seminar series covers the process in detail if you’re interested.

Use an adviser

A good M&A adviser can pay for themselves many times over in a successful sale process. You will have done the difficult bit – building a successful profitable business. So why use an adviser? They save you time and stress – you can concentrate on running the business. They give you negotiating edge – if you run your own business you’re probably a pretty good negotiator but it may be that you have to work with the buyer for a while and need to approach things more softly, so the ability to take a Black Hat White Hat approach is helpful. A good auction process will deliver lots, but particularly a good presentation of your business and true competition amongst buyers.

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Lake Falconer

Corporate Finance Partner
Lake leads the PEM Corporate Finance team on MBO, acquisition, disposal, succession and strategic planning. He also heads up PEM’s valuation team providing business valuations for shareholder exits, disputes, business planning and regulation. Lake has over 30 years' senior level experience as a business adviser and as a manager in industry. He holds the ICAEW corporate finance qualification.

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