Planning for a sale: Ask the big questions

Posted by Mark Booth

Director in KPMG’s Liverpool Deal Advisory Team

Thu 17th, Jan

Now, perhaps more than ever, planning and preparation is crucial when it comes to selling a business.

Nobody expects a first-time vendor to know exactly how the deals process will play out. This is why it’s critical to choose the right advisor to run the process, ensure that the business has identified all the data that a purchaser will expect to see, answered the questions they will expect to be answered  and to help ensure that data is of sufficient quality to go through a due diligence process.

Make no mistake, the due diligence process is tough. There will be financial, taxation and legal due diligence as standard, but dependent upon the nature of the business a purchaser may wish to carry out commercial, environment, operational, IT or HR due diligence, to name but a few. Without support, this places an enormous burden on a business’ management team who of course also have ‘business as usual’ to occupy their day.

With Brexit looming, there is a greater focus than ever on contingency planning. Buyers want to understand whether their target business has a contingency plan in place to deal with any fall-out from the UK’s exit from the EU particularly in respect of potential disruption to the supply chain. This is something that has been occupying our more operationally-focused colleagues on recent transactions.

That's not to say that vendors aren't getting a good deal - quite the opposite; there is a huge level of demand for high quality assets from various different sources:

  • UK corporates in certain sectors are finding organic growth more challenging than in the past and have access to cheap debt;
  • Overseas corporates still view the UK market as an attractive long term proposition and see the opportunity to benefit from the current weakness in Sterling; and
  • With interest rates having remained at record low levels, investors are looking to private equity (PE) funds. As such, PE has more capital to deploy than ever before and is under pressure from investors to get that capital invested.

Where we are seeing processes fail is where assets are rushed to market with a low level of preparation. If a buyer is not afforded enough time to clearly articulate the strategic rationale and get sponsorship within their own organisation, or if they cannot get the data they need to get comfortable with the risks in a business, then they will naturally need to discount the amount they are prepared to pay for that business. And that is often not acceptable to a vendor who has a differing view on prevalent risks.

Planning for a purchase: After the deal

Many corporates are not experienced in conducting M&A activity, and why should they be? It isn’t what they do day-to-day and it isn’t a core competency in delivering the great results they have been delivering and which have put them in a position to consider making an acquisition in the first place.

Whilst an M&A process is hard work on both sides, the hard work for a purchaser does not stop at the point the transaction is signed, there is then the whole process of integrating the new business and workforce into the parent organisation.

It is a surprising fact that two in three corporate acquisitions are value dilutive, with a lack of planning for post-transaction integration as a key factor in the failure to realise expected synergy benefits.

Purchasers should thoroughly consider and challenge themselves in respect of the synergy benefits they expect to achieve - are they realistic or aspirational? How are they going to be realised and what are the key dependencies? Is a plan in place to ensure that the culture of the target and parent businesses will be aligned and that everyone will be pulling in the same direction?

As ever, planning is key and this planning would ideally be done before a transaction to ensure that a purchaser is ready to kick on from day one.

Planning for success

Businesses today are under more pressure than ever to deliver better results for stakeholders. Whether you’re buying, selling, funding, fixing or integrating a company, the process can be complex and risky, and without the right strategy, support and insight, the deal can collapse. So that both sides get the maximum value out of the transaction, buyers should think like sellers, and sellers like buyers. As corporate finance and transaction services experts, we'll be here the entire time to take you every step of the way to reach a successful outcome.

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