Elitetele.com CEO Matt Newing has cannily played the role of serial acquirer for seven years and there is no stopping him. Here, he offers a seller's guide for company bosses wanting to cash-in their hard earned chips.
The UK IT and telecoms sector is abuzz with M&A activity and ICT company owners are well positioned to earn a high valuation when selling their business. But navigating the acquisition landscape requires a strong strategy, sector expertise and sound, impartial judgement as there are many pitfalls, and it is important for sellers to work with industry professionals and experienced buyers to ensure the best and most profitable outcome. Whether actively selling or being approached by a larger businesses as part of a targeted acquisition strategy, IT and telecoms business owners would be doing themselves a big favour by considering the following steps to ensure the process is as smooth and successful as possible for all parties involved.
Appropriate funding
When approached by a potential buyer, check the appropriate funding can be sourced. Not all potential acquirers will have finance in place and access to finance is often a key reason that halts acquisitions. While a buyer will ask you lots of questions about your business, you should also ask them about their business. This will tell you whether they really have the ability to conclude a transaction.
Review tax implications and benefits
It is important to be aware of any tax implications or benefits that may exist before engaging in an acquisition. There are potentially significant tax advantages to business owners when selling a business but tax regulations change year-to-year, so ensuring you know your position will be important. This may impact the proceeds from a sale so it is crucial to factor these into any decisions.
Understand deal structure and flexible integration
For business owners it is important to have the flexibility to negotiate integration terms that suit both parties. This entails negotiating whether payment will be entirely on completion or staged, and whether any staged payments are linked to performance (known as an earn-out). An earn-out gives the seller the opportunity to further increase the value of the business over an agreed period of time to achieve a higher overall payment.
Ensure business as usual
It can take time to find a buyer for a business, and the actual process of completing a sale can be time consuming. During this period, the business must continue to run as usual and ensure a profit is being turned. Failure to do this means the business can be at risk of becoming less valuable, which can lower the chance of selling.
Due diligence
Perhaps the most important step in the acquisition process is to carry out due diligence. This entails a detailed investigation of the company being bought. The process ranges from delving into finance to interrogating billing systems, an essential step in identifying how to integrate businesses and the value of the deal itself. Sellers should prepare by gathering any documentation potential buyers will require, such as past financial statements. The more sellers prepare for this stage the better the chances of selling the business.
Manage communication and minimise disruption
Once the structure of the deal has been agreed it is necessary to plan effectively for a post-deal world. It will come as no surprise that the management of communication and minimisation of disruption following an acquisition can be hard. In fact, it has been found that more than half of mergers and acquisitions will fail as a consequence of ineffective integration of information and processes when companies join forces.
With this in mind, it is essential that businesses have a clear guide on best practice and work with an experienced buyer to factor in solid communication with staff and customers to minimise confusion. This will ensure that companies are making the most of the benefits that are commonly overlooked, such as using existing staff knowledge to its full potential, and also planning ahead for any challenges that could arise.
Look out for the warning signs
It is important for businesses interested in selling to be aware of competitors with 'nosy' intentions who are just hoping to find out information rather than acquire. Sellers can spot a genuine buyer by looking at its history of undertaking acquisitions. Ask whether they have proof of funds or can show they have funds available to buy before opening lines of communication, and ask about previous acquisitions they have undertaken. You should also seek references from previous business owners that your potential buyer has dealt with.