Part of the series of Equity Investment Webinars produced by the University of Essex and UEZ.
Welcome to Angels at Essex the University of Essex we are just waiting for people to join us so please be patient just give us a minute or so uh whilst we wait for people to join this webinar welcome to all those who are currently joining this webinar we will
Be starting in approximately a minute or so just as people join us so please be patient thank you welcome to Angels at Essex this is our investment Readiness program and today we’re talking about exit strategies we’re just waiting for the last minute or so for people to join us
Um there’s always a short delay but please be patient welcome everybody we are about to start welcome to Angels at Essex my name is John Stenhouse and I’m the business support manager running the investment Readiness program and Angels at Essex our Equity investment platform our webinars are actually
Recorded so they will be made available on YouTube as soon as we can upload them but the YouTube channel is currently live and has our previous webinars in this series available to view please use the Q&A if you have any questions the Q&A is your opportunity to ask those questions most demanding or
Otherwise of our guest speaker or myself and we will endeavor to answer all questions during the course of this webinar we’ll leave most of them to the end but some of them may be answered as part of the presentation but there is no such thing as a silly question so please us just
Ask this is your opportunity to listen and learn angels of Essex has had a successful three-year run and we are pleased to announce that we have raised over 33 million all businesses in Innovative and early Siege stage situations but of course getting businesses off the ground is one area
But what happens to the business next and this is something that you need to plan at the very beginning and I am very pleased to have with me today Lake fuler from alpha corporate LLP now lake is a very experienced exit strategist and implementer and has helped many many
Businesses um go through the process of both selling MBO buyouts you name if Lake hasn’t helped a business through the process then I don’t think there is a process that exists so I am now going to hand over to Lake now don’t forget you can ask questions during the course
Of this webinar using the Q&A and uh Lake would you like to introduce yourself and give us a little bit of background and to fill out the gaps that I have left John thank you thanks for that and um congratulations on how much you guys have achieved uh so far with
The program yeah a brief introduction um from from me um mini mini biog if if you like I’m a chartered accountant I had what I thought still think it was the good sense to escape from the world of auditing immediately on qualification and and went into uh Venture Capital private Equity with
Threei um where I had a fantastic time backing all sorts of businesses and transactions but also within that a number of successful startups and and growth businesses so great insights from that most of my career though has been as an adviser to business owners helping them with m&a buying businesses selling
Businesses with buyouts succession this topic exit strategy and exit planning and valuation so and I’m still doing that I’m now working as an advisor and also as a non-exact or board advisor much more directly with companies going through that kind of Journey so my focus I think in all these C circumstances is
Around value what is it how do you maximize it and how do you monetize it so um the agenda’s up there on the screen what I hope to bring you today is an overview based on my experience that can help you map the route ahead as you
Start or scale up your business so a brief look at the m&a market today what’s it like give you some insight into the Dynamics why is exit strategy important at early stage exit planning um as a lens for driving the company forward what are the exit routes exit
Options that you can take and then some thoughts on timing so first off just to dive in then and have a look at the market this is data from experion um looking at UK deal activity in value and volume from 2013 right up to 2022 focus
On the bar chart that’s the volume uh the value swings wildly because it gets influenced by Mega deals so for things like the sale of arm um so you can see that it’s been a little bit inconsistent but broadly an upward Trend and and fairly flat over the last couple of
Years but doesn’t look like any Panic there’s the east of England data for the same period uh it’s been really quite consistent hasn’t it in the last couple of years it’s been up I think you would probably say that the trend line is more of an up across that period so broadly
It’s a nice sustained background there will be someone out there who will buy your business in due course what about the price at which these deals are happening well this is data from uh BDO this is their private companies price index and private Equity price index so this shows the multiples
That people are getting when they sell their business the black line is the stock market which as you can see is all over the place because it fluctuates wildly the unquoted companies which this index focuses on as you can see are much more consistent the red line is the private Equity deal prices
And they during this period which is from the middle in 2019 right up to date have been paying a little bit more than trade and strategic buyers for businesses so the the orange line at the bottom is strategic buyers and it’s been fairly consistent it’s probably sagged a
Bit since the back end of 21 but not hugely uh so it averages out around about 10 at the moment bear in mind this is an average of all companies of all deal sizes if you want to know what your business is worth you have to be much
More granular with the data so that’s the history of course they always say history isn’t a predictor uh I think the best way to get a prediction of the coming Market is is people survey whether people are feeling bullish about doing deals so this is data from interlinks which is a data room
Provider basically asking deal doers m&a professionals what do you think is going to happen quite difficult to digest on screen if I can just pull out there that’s European data basically the red block is the folks that think they doing will be at the same level or increase
Over the next year which is 75% of them and actually the US data is more like the low 80% so the deal doing community is pretty bullish about 2023 and that’s usually a pretty good indicator so I know not many of you will be thinking about selling tomorrow but it’s nice to
Know that the market is is pretty positive to start with so what about exit planning and why is it important at all stages in a business well it’s about checking that your ladder is leaning against the right wall frankly in terms of your direction strategy and your planning you don’t
Need to focus on the upper rungs the later stages of your business development right now but you need to know you’re going in the right direction when you start and scale a business the the focus is very much about the exciting possibilities for growth but it is I think important to know where
You’re going how will the owner transition out the business how will you realize the value that you built so the exit uh strategy has a number of benefits in this context so the first one I got up there is it’s a guiding path for decision making you
Need to Envision how your business will need to change or evolve think strategically who’s going to buy you what will make you attractive to them align your short-term goals were your long-term Exit Plan I can give you an example I sold a software business in the Telecom sector where we did a
Strategic review they had quite a lot of nice business verticals running but it was pretty obvious that only one of them was going to be really valued by buyers and it actually was the one where they had most growth in so the conclusion of that survey was look focus on that drill
Down on that and deemphasize the other bits of the business it can also be a framework for critical other critical choices if you go in the other way and thinking about will I move into an adjacent Market well the answer might be maybe not because it might dilute our
Efforts or it might be yes it’s positive because buyers would look at that so gives you an idea about shaping the business second bullet there it’s up about maximizing business value have you got clear business objectives and Milestones and value what do you know what your business is worth today would
You like to what would it be worth in three years time what’s your target exit value and just as important what must the business look like to hit that value um and incidentally if anyone wants a quick take on what the business is worth I’m happy to have a chat
Offline so an exit strategy is a road map to increase the value of your business over the life cycle adding the bits it needs to have so maybe adding IP recurring Revenue focusing on work on Capital Dynamics the brand the people give you another real life example I worked with an engineering business
Where it had some nice IP but it was mostly just distribution and the emphasis out of that strategic review was build the people to generate more IP to dilute the wholesale sort of reselling business which they did and it very much drove uh an uplift and the
Value of that business when I came to help them sell it have an eye to value at all times Drive the value it will help attract investors and it’ll give you the right priced exit talking about Investors they like entrepreneurs with a Clear Vision and an exit strategy
Thought out out with a compelling narrative on investment returns and you know how you’re going to get to them according to the British Business Bank um Angel Investors and I know that’s quite a lot of the community here split roughly 5050 on whether they see their investment period as more or less than
Five years but actually only 20% of them see them holding more than seven years so it’s very much the time scale for exit strategy izing when you’re presenting and and pitching and if you’re raising money from private Equity Funds in my experience at some point when you’re
Pitching to them when you’re in the room they will want to hear your ideas on who you think you’ll sell to on what the exit will be and if they don’t buy that narrative it’ll put them off big time I’ve seen it um so well worth having the
Next bullet point I have up there on why this is important it’s about mitigating risks contingency planning it’s staying the obvious to say that business is dynamic and there are unforeseen risks but exit strategy can guide your contingency plans mitigate risk help you with resilience and finally don’t
Overlook your personal goals or your professional goals it isn’t all about money entrepreneurs rightly have personal goals too I’m advising a business at the moment it’s a Consulting related business on a sale and it’s very much about the two directors staying on after it’s sold and finding the right
Buyer to help them exploit what is a current fantastic Market opportunity for them and we’ve kind of got that down to choice between a private Equity buyer us private Equity buyer who’s doing a consolidation in that market or a European trade buyer which will give them a very different experience after
The deal and so there’s a debate going on as to what really matters I I think I know which way they’ll go because they’ve got quite clear ideas because they’ve thought about this before which obviously helps so thinking about exit when you start uh or early stage it seems
Counterintuitive but of course the problem is you do all your business plans at start and of course very few plans withstand contact with reality so the analogy I like and and this is the reason I’ve got that image up there is your business plan is your road map for
How you think you’re going to get there your exit strategy is your compass so that when you come across a problem where the road’s closed or there’s another obstacle in the way you can be flexed you can flex your plan and be resilient and then of course anything
That makes the business more exit ready will make it a better more resilient business so your business plan is helpful it’s how you think you’re going to get there in steps your exit strategy is your compass for where you’re going so how do you go about exit
Planning um so this is to take you through the thought process because I think it’s useful whether or not you’re about to do an exit plan or whether you just want to reflect on some of these things in the context of your own business two approaches really depending
On when you can do an exit planning review which is a rather more folsome thing two or 10 to 10 uh years out from an exit or if you’re about 18 months plus I would say it’s more of an exit Readiness revieww slightly different flavor full exit planning review you
Need to be thinking about the personal drivers of the business owners as I mentioned what’s the m&a activity like in your industry what are your trading history and Prospects what about value drivers what will drive value what will push up the multiple or depress the multiple you get how will a
Buyer look at your business and then what about your valuation and price expectations what are the different exit choices that you might make and how practical or desirable are they today I’m going to look at some of these I’m going to look at um I’m we’ll come on to
That in a minute what some of the actual exit options might be and then finally what about timing when you’re looking at Readiness and by the end of that what should drop out of that is some key strategic actions with timing and responsibilities attached to them in
Contrast the um exit Readiness scan much closer to exit close enough that you can have visibility of the market in the business cycle but far enough out to still do something about any weaknesses in your business Story the key questions at that point would be much more around
Is the timing that you propose still right what’s happening in your company’s Market what’s happening to valuations in the sector are they still attractive how are they trending is your original exit route still practical and preferred what else can you do to capture more value in the time that
Remains and going beyond that time have you got a pipeline of value creating initiatives that could extend after the sale that the next owners would benefit from ideally you want to leave gold in the ground future growth potential for the next guy because he will pay you
More for the business hopefully um in inherent reflecting the growth so here’s a slide which actually comes from a real life um but anonymized uh exit review that I did with the business and that it splits into two halves top half is the current state future State analysis and below that
There radar charts on the key points that drive value so at the top the idea is you you’ve identified the key facets of the business here it is now here it is as it needs to be on exit and of course in between what should drop out is the key actions that
Drive your strategy in this business and this was a technology and Technology Services business and in this business the actions were mostly to address the imbalance between the larger lower margin service business they had and an IP intellectual property driven products business radar charts below are based on
Specific data points which the number of surveys in the US have shown will influence multiples when you sell so it’s the kind of what drives value and and the on this chart five is high one is weak so this was when we looked at a business with great customer
Satisfaction and growth potential but initially it was weak on dependence on the owner and defensibility for what they had by the end of it of this planning cycle of course we were forecasting them having built a second tier management improved profitability and built some recurring Revenue what actually happened is before they got
Through the cycle it was sold successfully the products business was sold to a tech buyer and the services business was HED off separately into management buyout team and that shows how you can really make your uh strategic exit planning work now another key bit of the exit
Review is to think about how would a buyer look at your business it’s a very different kind of lens and here’s what I think are the key things a buyer will think about financial performance obviously but how sustainable is it is it risky is it scalable growth potential that’s more on
The scalability keep coming back to that what synergies are there with me as the buyer and with my customer base and your customer base people work very keen on there being no dependencies in the business no absence of dependencies on the owner suppliers or customers is key
A positive cash flow cycle if I grow your business will it need me to tip in more cash to fund that customer analysis will be important people will want to see is there any concentration how unique is your offering to them how loyal are they to your business and
Linked to that have you got recurring Revenue what’s the sort of is it consistent intellectual property of course is important very much with tech businesses and it’s about intrinsic value key employee retention what’s the continuity like in the business what’s the business’s relationship building like and your sector are you in a growth
Market have you got exposure to Imports what’s the m&a activity like in your sector and finally of course brand if it’s critical uh to your revenues so that maybe gives you some insight into how you would think about a business when you’re doing an exit strategy and some of the things that you
Might reflect on um what are we aiming at though what are the potential exit options well here you go here’s what I think are the key possibilities liquidation generally bad news obviously but sometimes if you’ve sold your trade separately for technical or maybe tax reasons liquidation will be
The way to get the cash out of the company into your own personal hands employee deals the next two are the acronyms they are eot for employee ownership trust and MBO for management buyout these address succession reward and retention for the people within the business they do similar things but they
Have quite different tax benefits I’ll talk about that in a minute um merger or negotiated sale actual mergers of equals rarely occur in my experience when people talk about mergers it’s because they don’t want to admit they’re being taken over um so usually it’s a negotiated sale someone knocks on the
Door and says I want to buy you it’s kind of difficult to get competition into the negotiation but you can still do um a good process I call that negotiation support and I’ll talk about that in a minute and then the next two are are similar a
Sale to a trade buyer or private Equity often that might be engineered Versa via a confidential auction and it will probably get you the best price but there are pros and cons and finally an IPO flotation it’s complex you need to be big enough to do it but it can give
You the best price and of course if you plan to go on and make Acquisitions it’s useful to have quoted paper and that’s the one I’m not going to talk about today just give us a bit of focus and because it’s it’s probably most companies will exit through the other
Routes but again happy to take that offline if someone thinks they’re going to float um so let’s just have a look at all of each of these uh in turn so first off the trade sale there’s two ways that you can achieve that one is the negotiation support the negotiated
Onetoone uh conversation the other one is a full marketing will you effectively auction the business so the um the negotiated arm wrestle with a buyer this is where a strategic buyer knocks on your door how would you feel would you be prepared what kind of first impression would your business make there’s only
One buyer so it’s harder to get competition but what you can quite often do and I’m doing this on a couple of deals at the moment is you just add in two or three more which gives you some competition but without the full process I’ve seen a lot of these door
Knocks in the last in the last few years uh that really indicates how active strategic buyers are at the moment so that’s a negotiated sale your other alternative is actually to auction the business covertly because obviously you don’t want to wash your linen in public the aim here is to get multiple
Motivated buyers in real competition for the business it’s truly competitive you see the best offer being much better than the lower you see people improving their offers typically takes 6 to n months to do right now probably a bit longer sometimes um and as you go through the process you’re talking to
Fewer buyers but they’re getting more information about your business so it does need to be controlled so to talk you through in Big Picture terms what a disposal auction looks like broadly five steps now I could go on all morning about this so this really is just the the edited
Highlights um planning stage obviously you look at Alternatives like buyouts and employee trusts you think about your tax is there anything else from your exit planning review you should be doing second stage is packaging that’s getting the getting your act together for the sale prepare a good selling document an information memorandum the
Book that describes the business for sale obviously it has to have good numbers but most importantly it has to have a good story The Narrative is more important than the numbers I think um from that you’ll distill a onepage summary which is anonymized people call
It a teaser or a flyer and you use that when you go call Co call calling approach ing buyers putting the business out there how many buyers should you approach so the big Brokers out there who just use databases will tell you it should be hundreds which is nonsense
Obviously it shouldn’t be just single figures I think the right answer is tens of buyers and whether that’s 30 or 70 will depend on the business you need to be thoughtful about it one size fits all is not the right mindset for this you then approach people and it’s
About reaching out through phone calls or whatever works to the exac m&a director Finance director someone within your target buyer to have a discussion to get them to sign a confidentiality letter after which they can get the information memorandum about the business and then of course to push them
To have a meeting with you the owner and seller because that’s when you’ll really sell the virtues of the business on the back of that you’re then going to put a deadline in place and say to people I want your best offer offers come in in the form of letters of intent which
Provide quite a lot of information but they’re not binding and at that stage that’s where um okay well frankly it could be necking but also a bit of fun that’s where you can have a bit of sport when you actually play them off against each other to get the the best offer and
Then you get to the final stage with the closing stages that’s where you bring your lawyers in you really do need to have a good corporate lawyer because of course you’ll give warranties and indemnities about the business this is where the all the documentation will pop
Up so the sale and purchase agreement is the main contract document usually done by the purchasers lawyers and the last thing that pops up here there’s obviously negotiation points right the way through but the big one is often to do with the balance sheet of your company people typically
Make offers for businesses quotes cash and debt free which basically means if your business is worth a million and it has a million of cash in it you’d want me to pay you two million for it same business worth a million cash and debt free but it has half a million of debt
I’m only going to want to pay you half a million but that cash and debt free assessment is done subject to you having a normal level of working capital in the business some weasel wordss there because of course working capital goes up and down uh and it can be quite extreme if you
Sold the fireworks company after bonfire night you would have loads of cash but if you were buying it you would want some of that cash held back I had a good example myself when I sold a business that was making wooden pallets importing Timber from the baltics we signed the
Deal took quite a long time to close during which the Dynamics of Timber importing changed so they went from bringing it in from the Baltic which meant they had to pay for it up front and then have it on a ship which meant they had loads of stock and they didn’t
Have creditors the way the timber pricing went they switched meanwhile to buying in the UK which meant they got 60 days credit and they didn’t have to hold stock so of course they ended up with a lot more cash and we had a real arm
Wrestle about how much of the cash we as sellers got to keep so that’s important don’t lose sight of it there’s money to be won or lost right at the end so that’s how you go about trade sale couple of flavors moving on to the buyout and I’m not talking here about
Buyouts where a business sells um it’s to to man a big Corporation and you walk there and you buy it this is more about as a vendor initiating a sale to your team if you have a stable profitable growing business with a good team it’s a viable option you can get more control
Perhaps than selling to the trade basic structure might be familiar to to some of you you sell 100% to the company to a new shelf company for a fair price you do it right you get Capital tax treatment same as with a trade sales so
You’re only paying 10 or 20% tax and it gets funded by any cash in Company by debt by perhaps a loan from you as a seller or private Equity investors management team you want them to invest some cash to make sure they’re committed um practical points there’s
Loads of funding for this at the moment the private Equity guys are are well up for it the banks will lend two to two and a half times EIT D even in the current climate key thing I would say is don’t just let your team have a go I’ve seen
People say to the management team you go away and try and put a deal together don’t do it that way keep controls a vendor you can structure it you can choose the price and the timing to suit you and also it doesn’t distract and worry your team meantime so you keep
Control and make sure that the deal is structured so it’s not to burden the business there needs to be some flexibility in the structure I always go on when I’ve talked about these succession byouts to mention employee ownership trusts because people tend to mention them in the same breath
The picture there is of uh John Lewis which of course is the the poster boy for uh employee ownership although in fact it’s not an employe ownership trust it’s under PRI prior legislation but the way the trust works is you must sell at least half the company to the trust it’s
Very tax efficient if you’re a seller because you pay no tax at all which is lovely um the the aim is long-term employee ownership but the flip side is very unfavorable tax treatment if you tried to sell it later funding is similar to uh buyouts but private Equity is unlikely because
There’s no easy exit certainly going to be difficult and the other key facet is that the employees as well as indirectly benefiting they can get 3,600 per anom tax-free bonus Key conditions employee ownership trust must benefit all the employ on the same terms and the target must be a trading
Company I think you need to think about the cultural suitability of your business before you jump on one of these you might need a different culture if it’s genuinely all employee think about motivation do your employees feel any different do managers have enough skin in the game and I’ve heard both stories
From people who done these things um you need I think to value your continued Independence because the disincentive to sell might act as a poison pill or can limit strategic options so you need to want to be John Lewis in perpetuity really brief compare and contrast of buyouts and employee
Ownership trusts the key differen is the tax is better on the trust deal but the later on a later exit the buyout is better as regards Senior Team motivation I should say these are all very much my opinions on this but I looked at this a
Lot um I think Senior Team motivation is better on a buyout because they have skin in the game you can customize better and a buyout in terms of culture retention I think that’s slightly better in a buyout because for employee ownership trusts for most owners um most owner managed businesses
Will require a culture shift if they’re going to trust it’s a much more custodial environment and finally as regards the motivation of people across the company that’s always important isn’t it I think if you do it right that’s probably about the same to be honest so they’re quite different superficially similar but quite
Different responses to the same question finally private Equity that can be a good way to sell or it can be a good way to get a part partial exit often they’ll buy a majority of your business but leave key managers in place then some of them bgf for example will
Potentially write a big check to buy a minority stake in your business to allow you personally to drisk and if you get the right one you’re Al getting smart money they can bring some knowledge to your board table they do typically prefer businesses making at least a
Million of profit and with a consistent track record it will bring a change to the ownership style of the business and it’s very much predicated on a later midterm exit it will introduce a different structure of funding to the business of course including a lot of loan notes and preference shares with funny
Rights it will need management to stay in to manage the business or if you’re wanting to exit as as the as the originator that will need to be managed and you’ll pick up some other costs along the way like board fees and monitoring fees and so forth there is a
Lot of appetite right now for private Equity Funds to invest indeed some funds because of the way they structured actually have pressure to get money invested by a certain timetable whether or not there’s war in Ukraine or inflation or or whatever so plenty money if it’s something you want to look at uh
You’ll have lots of choice we you have a route however um that you do choose timing is pretty important so there’s there’s the the key options on screen there as regards timing and how you assess it it’s typically more about what’s happening in your market and your business than the
Market as a whole that’s what drives it I like to use a kind of traffic light system when going through the the S of key FC sets of timing so this is a this is a madeup example actually um and the idea is you you could have various
Criteria you think are going to be relevant and try and assess how it works for you so in in this example green of course is green light is all systems go that’s positive so in this example for example um the sector is good that probably means that there’s lots of
Buyers in the sector prices are looking buoyant this business also has good SE tier management so it probably is a good story in terms of the owners getting out and the current tax regime well it’s not quite as good as it was but frankly it’s
Still as benign as it has been in terms of the tax that you’ll pay on a capital receipt um this one has uncertainty around Ukraine as being more of a a pause potentially and uh and also the financial performance tax regime is probably common to all businesses the other one
That’s probably comment to all UK businesses is relatively weak Sterling uh driving the interest of foreign buyers so that’s the kind of discussion that you would want to have uh when you’re at the point of thinking right okay I’m about to dive in and try to sell the business you probably want to
Have it through the life cycle through the exit strategy but you want to be really specific if you’re thinking actually I now want to push the button on the sale process so that I can sell over the next year so to try and P the threads together it’s a bit like a battlefield
Out there isn’t it in terms of what’s what’s going on business-wise but I think it’s worth when you’re thinking about exit strategy and strategy generally to take a lead from the Armed Forces as I understand it Battlefield strategy works as a series of iterative Loops so what I would suggest is get
Your strategy going and keep testing it that’s the idea that um uh you know you need to look look at multiple scenarios if things are moving fast reforecast more often I think I would say that that was something that really bubbled up to the surface during coid of course it was
So uncertain wasn’t it so people were reforecasting and reforecasting and that’s carried on to some extent partly because it’s a useful discipline and partly because might not be quite so exciting but times are still a bit weird so to summarize I’m seeing lots of activity in the market it’s still pretty
Positive so all of these exit options are very much uh available to you um it’s never a bad time to make a sales call they say and I think you could say the same about exit planning it’s always the right time to think about your exit planning whether or not you’re thinking
About selling in three years in five years arguably even if it’s not on your agenda at all because anything that you do to make the business more salable will just make it a better business for for you even if you keep it so I would say don’t let um either being sucked
Into the business or the current crisis don’t let anything deter you from making plans ultimately this is about finding an exit of your choosing at a time of your choosing or if you’ve got investors on board obviously you and your investors making those kind of choices I love to hear about people’s
Plans and challenges and what’s going on so genuine offer here if anyone um would just like to have a chat about your plans from through scale up to exit please do just get in touch just connect on LinkedIn and and let me know that uh
That we e met uh in this webinar so I hope that’s given some useful insight and thinking to folks out there and I will hand back to John now thank you Lake thank you very much indeed very very informative and whilst we’re whilst we’re colleting the
Questions I’m going to throw one over to you it it really goes back to the uh the very beginning when you start talking about multiples uh 10 times the value that sort of thing be a little more specific multiples of what that’s a very good
That’s a very good one to bring me up on because I did just SK over that didn’t I um in the example given in the data those are multiples of ibit Da which is earnings before interest tax depreciation and amortization broadly it’s a bit rounded about operating profit and the reason
That m&a advisors like that is is quite close to cash generation in a business but if you’re selling an early stage business or a tech business or I’m about to sell a software business the conversation might be around turnover multiples because people are interested in what they can do with it so it’s
Usually a profit multiple is the short answer and within that us usually EIT um but you can’t ignore turnover multiples and in some businesses particularly high growth or Tech driven ton of multiples are also relevant thank you um question from the floor how useful do you think are
Advisors Brokers and introducers I’m not going to make a comment there does does a direct approach depress your negotiation power I think um advisors are useful and I always say to people I don’t I don’t care whether you well I do care but I I’m I’m more worried about you actually
Doing the best out of this deal than whether you hire me um there’s all sorts of benefits you you have basically if you get a direct approach people do do deals sometimes and of course business people are used to negotiating but it’s a very particular negotiation and it is
Also useful to have uh good cop bad cop in these situations as well um to have a sounding board to give context for what you’ve been told by the buyer you know you might spend your life building a business but that’s not the same as buying and selling a business and the
Other thing of course to say is most people only sell businesses once in their lifetime or they only sell a particular business once so it’s important to get it right so I would say really you shouldn’t be doing it on your own you don’t have to use an advisor to
Do everything if you’re pretty capable if you’ve frankly if you’ve sold a business before if you have an investor who’s sold a business before uh you can dial up or down the extent to which you need input from an advisor but it’s too important a transaction not to do it as
Well as you can and I I think you’re quite right um advisers are there to advise and you should listen to all advice but take your own decision always uh in that case um I’ve got another question um it’s a bit more technical here um how do you feel about a pack
M&a are there any special precautions in a sense that’s a kind of it’s a cash buyer by another name isn’t it I think you would probably want as even more so than with with other buyers to feel that you can ask them questions you can do diligence on them who
Actually stands behind it where do the cash come from what are their intentions for your business afterwards it’s easy to to think that it’s all about you telling the story of your business to get max out of people but actually and particularly if there’s some ongoing involvement or some cash that you’re not
Going to get upfront in your bank account it’s absolutely legitimate for you to grill the buyer as well it’s a two-way street and do you think I mean when it comes going back to the question about professional advisers I mean say you mentioned Brokers and what have you
But do you think it’s best to have an accountant and a commercial legal lawyer on on speed dial when you’re going through these negotiations yeah you need a lawyer I tend to keep the lawyers out until we’ve agreed the letter of intent because with the best will in the world they get
Lawyerly and it tends to slow down the discussions um and but after that you absolutely need to have a good commercial lawyer working handin hand with your um Corporate Finance advisor the guy who’s been helping you put the deal together and the right advisor will know when to bring the lawyer in because
There are a when you need a lawyer earlier because frankly something comes up that they have to address but for the most part I would suggest you get to the point of signing a letter of intent with your buyer before you bring the the lawyers in because of course a letter of intent
Intent is not actually legally binding per no you need to be sure you need to be sure that you’re probably going to do what it says because you know it is it is a handshake and if you try and rigle out of it people I promise you people
Will say no I’m sorry you can’t do that because it says this in the letter of intent I promise you that’s what they’ll say to you so uh you do occasionally need to get a lawyer in the letter of intent stage because a buyer might stick
Something in that looks a bit scary and legal okay so in your I mean so you you touched on it as you were going through and you were going through the uh process and you you skimmed over the process which is quite appropriate at this stage but of course you you’ve left
The door open for anybody to contact you and we can share your contact details um they’ve only got a contact uez beautiful Meco Ze at. ac.uk and we will pass the details on but when you’ve been looking at businesses and valuing them um do would you if someone
Approached your business and said I want to buy it do you think you ought to go out and get a independent valuation straight away uh yes if I can split here slightly you probably want to have a discussion with someone about what a realistic price would be um because it’s not quite
The same thing value is the kind of evaluation is the answer you get with someone who looked at the whole market so what’s a kind of sober view of your business the price is what you would think you might get if you know who’s buying in other words you if for example
You’re selling a business that I don’t know is geographically linked and it has like cracking base in A6 and you’ve been approached by a buyer who has good UK coverage but has nothing that side of London well you know why you’re strategic don’t you so you might think
You’ve got a a bit of Leverage so um I do think you need to develop your idea going into negotiation because otherwise you’re just going to ask for more aren’t you or less as the case might be in and you also don’t want to ask for a bonker’s number as well
Because that will just put off the buyer unless sometimes you get approached by people and you think well I don’t really want to do the deal yet but equally I don’t want to show that unwilling in which case you might pump your number in the hope that it’s too high and
Obviously if they come back and they want to pay it then hey we’re off to races if you don’t ask you don’t get as the old correct it correct but don’t don’t frighten them off that’s the only thing if you are serious about doing it yeah there’s a question come up about IP
Which I I think is relevant how do you value your own IP when it is very Hightech and little understood by your potential Buy that’s a difficult one isn’t it because I guess my question in return would be why does your buy or want it if he
Doesn’t understand it um I think the challenge is probably how do you get full enough value if you’ve got IP that is truly revolutionary you you’ve got a communication job to do I think people need to understand why in terms of the science but also in terms of the
Potential Market exploitation why it has upside you do see businesses is being sold sometimes pre-revenue for astonishing amounts because they’ve got significant IP but that is because the buyer can clearly see value and understands it so that is a really good question um and I think I suspect you’re
Probably not going to be talking to a buyer unless they’re capable of understanding it you probably have to help them understand it so it’s it’s a real focus of communication and it might in fact inform part of your exit strategy is actually over time building up the way that you as a business
Communicate the value of your IP which probably meets your objectives to grow it as a business but there’s no harm in thinking at the same time how do I get that across to a buyer how do they value it I sold a software business once which spent years paying quite a lot for
Advertising on key pages in trade mags actually largely with a view that they wanted to get the rest of their Community to understand what they did because they had half a you on on when they sold it the guy who ran it had already sold a business and had a
Problem with that before um and it meant that when they went to Market everyone knew them and what they were for and that’s very good awareness raising isn’t it best yeah it is it is I mean to be honest I wondered why he was
Spending so much on it but I have to say having seen the end result he was right all along yeah and there is another old proverb I come out with is is who you know who knows what you do yeah yes absolutely yes so so so really really
Good uh question there because it’s all about communicating value it’s not enough just to have value the next guy needs to Value it yeah well this is going to bring an end to our presentation today uh oh no no I spoke too quickly must you always like your buyer it
Helps um I think in practice I’ve found that where people get offers that are broadly similar or not wildly different they will choose the buyer they like so I’ve got one at the moment where I think that’s probably what they’ll do um I have seen people hold the nose and sell
To buyers are not entirely confident about but I think what you would find you you would raise the bar in terms of how much money do I want to get of my business and how much of it do I want to get out front um I’ve seen people
Basically want to turn off conversations with particular bus because they just don’t like them and don’t trust them and it is about people you probably have to follow your instincts so to summarize money talks but only so much so I think you do need I think it really does help to like your
Buyer I I think I agree with you because the businesses I’ve sold myself personally ones that I’ve owned or helped to sell for others um it has helped when you like the buyer uh and you build up a certain amount of trust as much as you can build up trust with a
Yeah so absolutely I would observe that Goodwill is really important in the sale process you know some some intermediaries um that i’ who will remain nameless tend to take a pretty aggressive constantly chipping away Barrow boy type of approach to the proess and it just
Pisses off the buyer so when you need a favor later on or when you need to lean on something later on they’re going to be less open to it I always I always say no you know build Goodwill throughout the process it will pay off and before you get to the
Yeah and I must have it there have been occasions when I’ve turned a blind eye when it’s come to selling the business on the basis that I just want to sell the business yeah yeah yeah we’re nearly there let’s just get this done yeah and
Move on okay and moving on um I will now close the Q&A and I will take some time to thank Lake for his presentation as I say the door is Lakers very generously said that the door is open so by all means contact us um I’m going to ask uh
Victoria if she could uh put up the um uh ending screen please um uh screen share please Victoria and introduce our next webinar which is actually with u Simon attack from innovate UK Edge program which is a free service provided by innovate UK and the advantages of using this is that
They go through the Innovation model canvas which is really a excellent toolkit for determining how how to uh value your business and make sure that it meets all the requirements that Lake was actually putting out there regarding what are the weak spots and where are you strong and
How can you improve your business to that point so very much filling out that chart that Lake presented earlier but also inovate UK of course to the holder of money they have innovate grants they have innovate loans they have invested Partnerships they have a whole host of funding streams um which are alternative
Funding for your business so yeah stay tuned for Simon same time next Thursday at 2 o’clock I am now going to close the webinar I am going to say thank you very much indeed Lake and uh thank you very much for Victoria for helping out with
The back office so once again my name name is John Stenhouse this is the University of Essex investment Readiness from Angels at Essex thank you so much thank you everybody and goodbye