Getting the best result when you have to sell a business asset
There is a real skill involved in the successful sale of a business asset.
Even if the sale is forced because the business is facing a crisis, there are steps you can take to ensure the best possible price for your asset.
Being able to sell an asset in times of crisis can be crucial to the future of the business, and the process requires as much thought and pre-planning as possible.
The first thinking has to be “why are we considering selling and what are we going to sell?”. Selling because the bank or other parties say so is not always the best strategy.
Is there an alternative? It may be that the business operator has neglected to maintain profits or market share, the product is right but the costs are too high to produce in Australia – or maybe even that the board is too tired and jaded.
It may be agreed that all or part of the business needs to be sold.
In all cases, the business operation and balance sheet have to be reviewed so they can be tidied up. The business or division needs to be sale-ready before approaching the market – this is crucial if you want to obtain the optimum price.
The next step is to consider who the potential buyers are: options include competitors, a PE Fund or an MBO.
It’s important to look at it from the buyer’s perspective to see what’s in it for them.
Do your homework to find out what they want, how your business/asset would fit in to their operation, how much cash they have and what other factors may affect their interest.
If it is a competitor, how do you protect the intellectual property contained within your staff’s minds when exposing the business for sale, as they could be poached? You may need to bring them into the picture and use strategies such as an employee share ownership plan or bonuses to retain them.
If publicity is a factor, the sale method and approach will change – for example, you may have to make an unsolicited approach to one or two targets and obtain signed confidentiality agreements rather than publically requesting offers.
What you are selling helps to qualify the buyer and the price. Are all the tenancies secure and transferable and do they want them, are supply contracts secure, can sales contracts be voided by a change of management, do they want your order book, your staff including their IP, your IP, your fixed assets, your water rights, your mining tenements?
For example, if the business is not making profits then the sale value of the assets may approximate auction value together with a margin. Excessive employee entitlements will reduce the price paid.
If profits are being made, the business will usually be valued on a multiple of earnings which may exceed the value of the assets.
Other factors not included in the accounts that could increase the price include relationships, industry experience, or removal of a competitor.
You need to ensure you have protected the assets utilised in your business as best you can.
Will you only accept cash? What about shares, property or a combination? There may be tax considerations for the owners if you sell at a profit.
From a turnaround practitioner’s perspective, we try to show a good news story i.e. a pattern of growth over the last two to three years of increasing margins, profits and desirable assets.
So we now have our thinking completed, our balance sheet tidied up, a profitable and simple-to-understand operation and extraneous assets sold or transferred.
We can show a three year history or projections and our financial statements will sustain the scrutiny of any cynical buyer’s advisers.
It is now time to obtain a sale price assessment from auctioneers (if it is an asset sale) or from an independent accountant or business valuer if it is a profitable business. We are sale ready.
This article is an excerpt based on an article for Keeping Good Companies magazine.
Vantage Performance is a leader in sustainable business improvement, winning national recognition in 2008, 2009, 2010, 2011 and 2012.