How to do a private sale of your business - Investec Comment

Christian Hess
Adopting a “spray and pray” approach to a private sale won’t achieve optimal results (Source: Getty)
When it comes to selling a business, one size certainly does not fit all. This is particularly true in a private sale and for medium-sized companies, which tend to be tightly staffed.
Where there is a wall of cash waiting to invest in growing companies, it is easy to be tempted into a “spray and pray” approach – disseminating glossy teasers and information memoranda to countless possible purchasers – in the belief that this will result in the best deal.
But achieving the optimal result for shareholders requires a far more considered and thoughtful approach, tailored to the specific requirements of your company and its potential buyers.
The factors closest to the heart of any private business vendor typically include maximising value while minimising execution risk, all within an optimised timetable. Helping you walk the tightrope between these often conflicting requirements is where a highly experienced adviser can add genuine value.
Preparation, as is often the case, really is key. The process starts with the detailed unpicking of the investment case and interrogation of, among other things, the company’s competitive position, financial track record and future growth prospects.
This early preparation should aim to prevent a key pitfall in private sales: unexpected negative surprises in the subsequent due diligence phase, weeks into the process. Anecdotally, a little talked about statistic is that this happens in an estimated 50 per cent of all sales through lack of proper preparation.
What else should this preparation entail? First, it’s important to articulate investment highlights with specific buyers in mind. Ensuring hot buttons are pressed and allowing the potential purchaser to be “hooked” early will make them significantly more motivated to work hard to complete the deal.
Careful consideration of the most appropriate marketing materials, their content, sequencing and personalised delivery will allow key messages to be communicated to buyers in the most effective way.
The demand side of the private sale equation has changed immensely in the past five years. The potential buyer pools have multiplied in three dimensions: by region, by new sector entrants and, by the different financial metrics buyers seek in today’s markets.
The complexity of the market and the importance of proper preparation mean that the private sale process can be particularly challenging for smaller and higher growth firms.
Management distraction caused by a resource-intensive process is a particular concern for these companies, as any shortfall in the delivery of the business plan during a sale process will have significant consequences for the achievable valuation and may end up giving your company a “tainted” name.
In these increasingly complex situations, an experienced adviser will be invaluable – particularly one with multi-product experience. Engaging an adviser who is not tied to a specific exit route (whether an IPO, private equity backed buy-out, sale to a trade player, or a refinancing) will allow you to maintain optionality until the very end of the process. In simple terms, you can secure maximum value for your business even when markets are uncertain.

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