A selection of recent sales with lessons for us all
Every business sale has a story to tell – some more than others. This is a small selection of our recent sales and the lessons we think they offer, about which you can read more below. If they raise any queries about your own business or that of someone you know, do call us at one of our 24 regional offices. Regardless of whether there is any intention to sell, it would be good to hear from you. Please see the telephone number of your local office HERE.
We felt this was a great business, despite having made a loss in 3 of the previous 4 years. A good fourth year helped to highlight the underlying value of its profile and customer base, more than justifying the price achieved of just under £50k plus many thousands of pounds for stock. Surprisingly to many, owners who underestimate the value of their business arise almost as often as the opposite, asking:
“What is there to sell?”
Sellers and buyers alike rightly focus first on profit, turnover and net assets, but the underlying value of a business is more complex. Famously, social media and other internet companies sell for vast fortunes, even when they have never made a profit. Surely the same doesn’t apply to “normal” businesses? In a sense, yes – most of those internet businesses did have many millions of users, with a big prize awaiting those who could work out how to ‘monetise’ their loyalty. Indeed, access to markets is often the treasure chest of value which owners don’t appreciate they have. When they do, many realise that the access route is them alone and/or a few key executives. This is why planning your exit a long way in advance can make a dramatic difference to the Sellability Score of your business. It’s also why internet-based retailers – for whom the customer’s ‘relationship’ is primarily with a website – can be turned around relatively quickly, given the right know-how.
Dog lead inventor offered £10k by national pet supermarket realises £250k + £100k royalties
Our advice to the inventor of the Gencon All-in-1 dog lead & headcollar to turn down the pet supermarket’s offer proved right on the money. In part, this is a classic example of how an outright sale is not always the best approach, but there is an underlying message here.
“The importance of the RIGHT buyer”
Whilst a national retailer might seem a good fit for this product, they clearly did not feel that they had to create a win-win deal. So the search continued and we looked for a buyer with both the right skills and attitude for the opportunity. We found Andrew, who had an impressive track record in growing food businesses. Whilst Andrew had no experience with pet products our vetting revealed his talent for growing product sales through retail, wholesale and export channels, allied to an understanding and enthusiasm for the opportunity.
To maximise the value of the patent we needed someone who could sell the Gencon-All-In-1 through many different routes to market.
Outcome in this instance
The RIGHT buyer paid the RIGHT price and our client received the money they needed to buy their dream cottage in Wales.
We knew the level of interest in this £400,000 turnover business would be high, but even we were pleased by the number of interested parties we generated. After close vetting, ten were identified with the right means, motivation and approach, and asked for sealed bids. Happily, the most suitable bidder was also the highest – which bodes well for the future of the business, as well as the seller. This sale is a great example of the power of the open market.
“Who will pay the most?”
Identifying no fewer than ten suitable buyers puts the seller in a very strong position, but you have to keep your cool and run a professional, clearly structured process. Are their offers really equally credible? What evidence of finances do you have? Do you just want their money, or does their attitude to, say, staff and other business relationships, matter to you? Having qualified all comers as far as practical, sealed bids is a tried & tested way to get the best price. The importance of this to the seller, beyond cash alone, is hard to exaggerate. It allows him or her to depart without the constant nagging feeling of possibly having sold short and so to ‘move on’ to whatever comes next.
Outcome in this instance
Our clients, who had been trying to sell privately for a few years, achieved full market price, whilst safeguarding the jobs of their staff. Their long sought retirement was delivered within 6 months.
Machining firm sells through us at over 4x net earnings, after 2 years with other broker
We identified key purchase deterrents and worked with the owners for six months before putting the business back on the market. A buyer was found and a sale completed, at over 4x net earnings, less than five months later. Working with owners in this way is a major aspect of our business, helping us to make sure everything is in place before going to market.
“Why isn’t my business selling?”
Of course, if you do go to the market and no one wants to buy, there is clearly a problem. Sometimes it’s just price. More often, though, it’s because each potential buyer can see obstacles beyond which he or she simply won’t go, regardless of the price. Many see vagueness about almost anything, from accounts and client contracts, to staff holidays and property rights, as a major, ‘turn back now’ warning sign. A pattern of declining sales, or worsening client relationships, too, whilst quite possibly the result of random chance, will deter buyers, whose detailed examinations often mistake chance coincidences for trends of deep significance. The only way to deal with this is to put in the hard work necessary to remove those obstacles. It takes time – five months in the instance cited here – but the rewards are invariably worthwhile.
Outcome in this instance
When your 4th generation business shares its name with your family and the town it’s located in, closing it would have been tragic. After 2 years on the market, this was the situation Adrian faced.
Within 90 minutes of meeting our regional partner, Adrian understood why he had not secured a sale and a plan was set to rectify this. Adrian was able to preserve the family business that meant so much to him.
Sale of iconic harbourside sandwich bar at near £275k highlights need to look gift horses in the mouth
Three years ago an arson attack razed this business to the ground. The 74 year old owner and his wife rebuilt and soon got back to producing 70,000 bacon butties every year. On being asked to market it, we negotiated three serious offers in the first few weeks of marketing, one close to the £275k asking price and another substantially higher!
“Why not just accept the highest offer?”
This brilliant sale emphasises the point made in the lettings agency story above about the need for background checks on bidders. We had already negotiated the price up from an offer made by a highly successful local restaurant business, to within a few percentage points of the asking price. We then received a substantially higher offer from an equally enthusiastic and committed buyer. The danger in this situation, especially where trophy businesses are at stake, is that the higher offer can be used to push others aside, only for it to be reduced later. To avoid this risk, we looked closely at the finances of both parties and quickly determined that, whilst both were, we think, acting entirely in good faith, only one party really had the means and commitment to make good on its promise.
Established 35 years ago by the owner, this consistently profitable retailing & manufacturing business occupied a terrific main road position. We achieved a 100% share sale equivalent to a multiple of twice the adjusted net profit, plus net assets. Retiring owners are regarded as ideal by many buyers, in some cases for reasons that are not in the sellers’ interests.
“Plan to retire on the up!”
Buyers like to buy businesses from retirees because it is a “positive” reason to sell (i.e. it doesn’t imply a lack of faith in the business). Too often, though, we see owners plan for retirement, over several years, by winding down. They take more time off, don’t look after the marketing quite as well as they used to and quite enjoy not pandering to new business prospects whom they find irritating, even if potentially highly lucrative. No surprise then that the value of the business winds down too – sometimes so much that, even after cash-flow discounting, the owner would have been better off selling years earlier. Fighting human nature is hard but, wherever possible, we advise those who intend to sell and then retire to plan accordingly, perhaps including key staff members in the plan to incentivise them to maximise value at the time of sale, so facilitating a much happier retirement. Retirees who realise a top price are better off and, because of the ‘selling short’ psychology referred to in the lettings agency story above, more content as well.