Mike Norrie, a director at Castle Corporate Finance in Tonbridge, says 2013 could be the year to sell your business.

Are you prepared?

As we seem to be slowly moving forward from the longest downturn in living memory, what does this mean for owner managed businesses looking to sell up?

What we do know is that, although some say things might be improving, we are not about to return to those frothy times of 2007.

That said, there is still a ready market for the right business. Many owners have postponed the sale of their company until “things get better” and, after five years, this could be the ideal time to capitalise on your business’ potential.

The marketplace

With interest rates continuing at record lows, the larger and quoted trade buyers are keen to invest their growing cash reserves in sound companies.

Added to this, the private equity market has returned with substantial cash funds and an appetite for growth opportunities. In addition, overseas buyers –from the US and India for example – are searching for suitable businesses in the UK. They are drawn to us, as we are an English-speaking European (non-Euro) country with a stable economy.

So the buyers and the cash are there for the right company.

What is the right company?

Well managed. Good buyers have plenty to choose from and they have no time for poorly managed, lifestyle businesses. This means planned management succession is important for the shareholder looking to retire.

n Capable of growth. There is little attraction in an exhausted business and it is essential to have a well-considered growth plan.

• Niche. There is ready demand for companies that can differentiate themselves. Being in the “right” sectors can ensure strong interest too.
• Sustainable. It is essential to prove strong and continuing relationships with customers and suppliers. Are sales and margins assured to grow?
• Price expectation. The multiples of the “good old days” are not that easy to find. Buyers want assured growth and the best deal for a vendor will probably be based on a blend of current and next year’s profits, rather than a forecast based on historic results.

Such deals are now the norm, requiring minimal bank support and offering the aligned benefit of the “buyer pays for what he gets” and the “seller gets paid for what he delivers”.

Where earn-outs or conditional consideration forms a part of a deal, it is vital the vendor takes professional advice on the deal structures.

n Preparation. The buyer’s due diligence process has never been more searching and any “surprise” discovery will jeopardise the price or even kill the deal. A vendor should undertake a full review of financial, legal and commercial activities prior to marketing the business.

What of the management buyout?

MBOs are being done but the vendor generally needs to accept a discounted price and be prepared to wait for the proceeds over a drawn out period. Bank funding is no longer available in the proportions of six or seven years ago.

It should be an opportune time to sell the family company – but you need to be prepared.

n Mike Norrie can be contacted by email at mike.norrie@castlecf.com or phone 01732 400123