Most of the people we work for are retiring, and they’ve spent decades building their businesses alongside their staff who, over time, have become more important to the business owner than an employer employee relationship. So, it’s quite common to be having a conversation at the beginning of the sale process about how they’re not looking to sell to an entity where it could be detrimental to the future of the key staff. We’ve seen owners take deals that financially aren’t quite as good as another offer because they can see a better future for their staff and their families.
In that 1 to 10 million dollar sector it can range anywhere from a 1 to a 5 times multiple on the pre tax earnings of the business. A one multiple would represent more of a job than a business, with no barriers to entry and clear and present risks around the profit. Then on the opposite end of the scale a five multiple can apply where the risk around the future earnings of the business is low - it’s got great growth prospects, and everything else about the business is unquestionably safe. It has to be an exceptionally sound proposition to command a multiple of 5, and we’ve achieved that level and more in a sale process, where the business has ticked all the boxes and the earnings have been calculated properly.
Normally a business is valued on it's risk profile going forward. So, someone who's made an offer to buy a business has normally arrived at a value by ascertaining what impact any associated risks could have on the business. So due diligence should be about verifying everything they already know and looking again at every single part of the business and verifying whether it's going to be the same, better or worse under their new ownership, after the current owner has gone.
Everything that a buyers independent due diligence team is going to want to look at. Historic finalized end of year accounts and P & Ls for the year we’re in. Products and services by revenue for recent years. Customer revenue ratios. Lease agreements on the premises. Supplier agreements. Customer service agreements. Condition of the plant and equipment. The normal stock holding and what’s obsolete. We need to understand the organizational structure of the business as well as any anomalies in the staff employment contracts.
We have to understand the business in it’s entirety so I can ascertain an agreed value range that’s going to stand scrutiny with a buyers due diligence team. We then put together an information memorandum that’s informative and accurate, with enough of the right content to engage the right buyer without giving away any of the intellectual property. Any people we deem potential buyers are carefully vetted, face to face to ensure they’re the right fit for the business going forward. Our business owners will only meet a handful of qualified buyers who we know, have the financial means to complete a transaction and the skillset to take over and grow the business.
Very much so, almost everything we do is off market. It’s very rare for us to get a client that wants a public sale process. Most times buyers are already on our databases. Everything’s wrapped up in confidentiality agreements and we never openly discuss the fact that we’ve got a particular business on the market without having an NDA in place first. The last thing a vendor wants, is their staff, customers and competition knowing they’re for sale. It has to be HUSH HUSH
Normally we do a staged release of information. We’ll start with a preliminary information document that gives a good holistic overview of the business. It’s enough information for a buyer to understand whether it’ll fit their acquisition criteria. And, from there, it’s generally about the buyer asking for more information to try and ascertain what the business is worth to them. Now, some of that more sensitive information can be dangerous in the wrong hands, so, we work closely with our Vendors to establish where the risk is, in handing certain information to a potential competitor and together we try and stage the information flow so the buyer gets what they need, but, all the while justifying their genuine intent behind receiving that classified info …. It’s really important that the intellectual property and the ‘unique core metrics’ of a business aren’t bandied around unnecessarily
We make sure we have a firm grasp on what we’re selling. Absolute, total, clarity, we measure three times an cut once. If you don’t do that as a business broker you waste everyone’s time. Every deal we do, has an accountant and a lawyer working independently for both the buyer and the seller. Deals don’t get done if they don’t make sense to the professionals involved. A good business broker will ensure the opportunity has good commercial logic before it hits the market – that means a lot less stress for the business seller.
The short answer to that is no. We’ve got buyers lined up to buy businesses in just about every industry sector you can think of, so we tend to focus on businesses that are profitable, with a bright future, and a vendor that’s getting out for the right reasons, like retirement.
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