Make it Your Business
Most merchandise companies will consider buying or selling a business at some point. PM ﬁnds out what it takes
The most recent Sourcing City annual state of the nation Market Report 2017 showed that the promotional merchandise sector in the UK is now worth more than £1billion.
It also shows an industry that is changing structurally, with the market share of larger distributors increasing. In a dynamic industry such as promotional products, there is always a number of companies looking to do deals either by buying out competitors or selling up. Knowing when the time is right to consider a deal is crucial for any business.
The BPMA has produced a guide to successfully selling your company at maximum value and has produced a step by step guide for businesses considering their options.
Businesses might consider a sale for a number of reasons, including a change of lifestyle, an inability or unwillingness to invest in the business, or the right offer coming along.
What’s it worth?
Honesty is the best policy when it comes to selling. That means being upfront about the business. Getting to a value for a business that everyone is happy with is more of an art than a science – there is no foolproof formula and ultimately the value is what a buyer is prepared to pay, which will vary for many reasons.
Types of buyer
Buyers come in many shapes and forms, and each will have pros and cons. Whether you’re talking to a direct competitor, a company from a related industry, or
an overseas buyer, there are different considerations to take into account, and each will have their own motivations.
The type of buyer will have ramifications for issues such as finance, the gearing of the business going forward, and experience in the sector. The devil is in the detail, and this is no time to skimp on due diligence.
The average price paid for a business is 6.8 times the adjusted net profit, however the value of any business is only what someone will pay for it. Most business brokers will only source buyers within the 3–6 multiple range. The only buyers who will pay a premium above 6.8 are likely to be strategic purchasers.
Coming up with a value involves looking at a varied basket of factors and trying to weigh them up. Advisors will need access to accounts and financial information, as well as details of any skeletons that may have to be dealt with prior to a sale.
It is worth bearing in mind that all of this has to be carried out with a degree of anonymity so as not to alert competitors or unnerve clients or staff unduly.
Once a possible buyer has been found, things start to get interesting. You will trade information with potential buyers, all the time emphasising the commercial value of the deal.
Before any meetings take place, be sure to have explored key areas such as the buyer’s background, their existing business holdings, and where your business might enhance theirs. Honesty
and transparency are essential, and there is an element of likability in any deal, but at the end of the day, the buyers are buying your business, not you.
If there is more than one potential buyer, bear in mind that they may not all move at the same speed. A fast moving company may have tabled an offer while others are still working through theirs. You need a strategy to deal with this, such as accepting an offer in principle with the caveat that you will in for mother interested parties and invite them to respond.
It goes without saying that you should evaluate each offer in great detail in order to ensure you are getting the best possible deal. There are many different deal structures, from straight cash through to more complex instruments such as elevator deals. The one you choose will depend on what the seller wants from the deal and what the buyer is prepared to offer.
Once a deal is agreed and is acceptable, Head of Terms will be signed. The buyer will want to satisfy themselves that what they are purchasing is true and correct through a process of due diligence. Once this is complete, the final agreement upon which the business will be sold can be drawn up.
To complete, share transfers will be signed and exchanged and a variety of documents will also be required to be handed over to both buyer and seller..
For a copy of the BPMA’s step-by-step guide to successfully selling your company for its maximum value, contact firstname.lastname@example.org