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7 Key Considerations When Selling Your Business

You have poured your life into building your business. Selling it is not only a very emotional process, but it can also be a monumental task that involves many intricacies. Careful planning and preparation before a merger or acquisition can translate into your efforts being rewarded with a high value deal. While there is quite a bit that can go into preparation, the following seven considerations are key to arriving at a successful deal in the end.

1. Protect What’s Yours

Intellectual property can be a company’s most significant asset. It differentiates you from your competition, is an important marketing tool, and can provide revenue through licensing agreements. It is also a major driver of value in a merger or acquisition. Any intellectual property that belongs to your business (proprietary technologies, copyrights, patents, design rights, and trademarks) must be legally protected. Enlist your legal counsel to ensure that all the proper paperwork is filed and current. If you are considering a cross-border transaction, you will want to make sure the property is protected on an international level as well as a local level, as different countries have different laws and requirements.

2. Get Your Finances in Order

It’s never a good look when a prospective acquirer asks for financial documentation and you are scrambling to put it together. This can also delay the process. Before taking your company to market, you will want to compile all of the proper financial and contractual records and have them organized and ready to turn over. Having your finances in order also means that you should seek to resolve any outstanding issues where possible before trying to sell. For example, if you know you have a situation you can probably resolve, getting it straightened out ahead of time can eliminate unnecessary complications during the due diligence process. The due diligence process is also going to require an audit of your assets. A buyer is going to want a complete picture of what they are acquiring. Intellectual property is an important element of due diligence but the process also includes areas such as equipment, real estate, and inventory.

3. Maintain Business as Usual

Going through the lengthy process of selling a business can certainly provide its share of distractions. No matter how easily it can be to become sidetracked or consumed in the details of the sale, now it is more important than ever that you stay focused on the daily operations of the business and ensuring that it is running at its best possible level. This includes keeping your management team focused. Deals can take time and they can also fall through. Every aspect of an M&A transaction hinges on the health of your company at every stage of the game and you need to make sure the business does not lose any value.

4. Think Like a Buyer

As a seller, you obviously don’t want to leave money on the table. That is why it can be helpful that you look at your business from the perspective of a buyer. This will help you avoid being fixated on a sale price the whole time. Think about why they would want to buy your business and what opportunities it affords them in the future. If you can improve your business and develop it as a strategic asset before you try to sell, you can increase its value and get more money.

5. Predetermine Your Role

Sometimes after the sale of the business the original owner executes a full exit strategy and severs all involvement with the business. You need to decide up front what is right for you. To what extent do you plan to relinquish control of the company? Do you wish to remain an employee or a member of the board? How much authority do you plan to retain? You should think these options through before going to market so that you can find a buyer that supports your intentions for the business.

6. Have a Post-Sale Plan

Consider what life will look like following the sale of your company. Think about what your financial picture will look like. How will you invest the proceeds to maintain your financial health? How much cash will you take at closing? How long should the earn-out period be? What about stock options? And don’t forget about tax liability. How much will be paid immediately and how much will be deferred? These are all important questions to ask yourself when anticipating the sale of your business.

7. Retain an M&A Expert

Selling a business is a complicated process and a seller should never go it alone. You may be an expert at your business, but chances are you aren’t an expert at selling businesses. Enlisting the partnership of a M&A experts can not only help you get a deal done smoothly but can help you get the maximum value for your company. M&A advisors know what to expect, they know how to avoid common pitfalls, and they have access to resources and experience that can be game changers for your deal. They can also help you work through some of the difficult decisions mentioned above. Of course, they come at a price, but a price that is worth it when you consider how much their involvement can increase the value of your sale and the chances of the deal being closed.

Ready to Sell?

When you are ready, so are we. Reach out to our M&A advisory experts at your convenience to talk about your options and how we can help you sell for the utmost value.

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A Beginner's Guide To Finding An M&A Advisory Firm

Entering into a merger or acquisition is one of the most important decisions a business owner can make, so finding the right M&A advisory firm is equally important. In the news, we frequently hear about massive M&A deals happening between big corporations. Big investment banks typically broker these large-scale deals. These same banks usually cannot be bothered to represent companies in the lower to middle markets because it’s not enough of a moneymaker for them.

Why Do I Need an M&A Advisor?

While you are an expert in your area of business, you likely do not have access to the connections and experience to identify opportunities that will result in the best strategic M&A solution. Partnering with an M&A expert will afford you many advantages. Selling a company is a complicated process and you will be relieved by how much they will tend to the many details and constant requests. A high quality M&A firm will:

  • Have established networks that will get you access to the right type of buyers.
  • Be skilled at managing expectations on both sides.
  • Know how to improve your business and market it appropriately.
  • Maintain the highest levels of confidentiality throughout the process.
  • Know the right timing for taking a business to market based on experience in that sector.
  • Appoint legal and financial services where needed.
  • Perform comprehensive due diligence and data management.
  • Conduct extensive negotiation and create a competitive bidding environment.
  • Finalize a fair and premium valuation of the business to get you maximum value.
  • Structure the transaction in terms of legal issues, payments, contracts, shareholders, debt restructuring, warranties, and indemnities.
  • Keep you informed at all stages of a deal while keeping you out of unnecessary minutia.
  • Assist with any necessary strategic decisions regarding integration, employees, timing, and announcements.

 

Ready to explore your exit and growth options?

 

Finding Quality M&A Representation

As an owner of a small to mid-size business, where do you start when you are seeking M&A representation? After all, this is a major life decision and you absolutely want to get it right. M&A advisory services range from big investment banks to small boutique firms. You need to assess what is right for you in several aspects. These are some key considerations for your search:

  • Many M&A advisory firms do not have varied expertise that spans local, regional and global levels. Look for a firm that will expand your options through the farthest geographical reach.
  • It’s okay to be discerning. Talk to multiple firms and create a shortlist. This is going to be a long process so you should feel comfortable and have a liking for the people you are working with, while you should also feel confident in their abilities to get the deal done right.
  • Study the reputations of the M&A firms and look for one that is well known for getting maximum value in deals. Look at what types of deals they have done in the past and if their experience is applicable to your business regarding markets, products, services, and regions? Also, seek out any available testimonials from their clients and look for a firm that has proven strong relationships.
  • Pay close attention to the initial discussions you have with them. Do they seem aligned with your goals and motivated to get you exactly what you want or do they seem stuck on going their own direction? You want your M&A advisors to be as aligned as possible with your vision and aspirations for the future. You should feel confident that they are in your corner and not just there to make a buck.
  • Assess their ability to create a competitive bidding scenario among multiple parties. Are they known for doing this? Do they have a large enough network and the right resources to make it happen?
  • Consider how their fees are structured. Some firms may take a percentage based on deal size. Some may have upfront fees, monthly fees, and registrations fees. You don’t want to be met with surprise costs. Make sure they are transparent about their fees and that their justification for them makes sense. While you do not want to get ripped off, you should also keep in mind that selling your business is a once in a lifetime opportunity and you want to get it right, so this probably isn’t the time to cheap out.
  • Look for an M&A advisor that you know will work with you as a true partner. A good firm will offer you constant engagement and welcome active contributions from you. They will make sure you do not miss any details and that you never feel left in the dark. They will also make sure that zero communications are sent to a buyer without your consent and input.
  • Make sure you are getting an M&A advisor and not just a business broker. A broker is less likely to offer a comprehensive partnership that details long-term plans and integration strategies that are important to the process.

Are You Ready to Sell?

If you are seeking an M&A partner, we kindly ask that you include Benchmark International in your search. We believe that our award-winning team can offer you all the qualities you desire while getting you the most value possible for your company. We look forward to hearing from you.

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Key Tips For Building A Great Management Team

Effective management is essential to the growth and success of any business. This is especially true following a merger or acquisition. Through analytics conducted by companies such as Google, we know that certain characteristics and behaviors have been proven to make all the difference in leadership’s ability to get results for the business.

Good Communication & Collaboration
Quality leadership entails listening to staff as well as sharing information with them. Talent that feels both heard and informed also feels included, valued, and motivated. When employees think that their feedback does not matter, or that they are being kept in the dark, they not only feel underappreciated, but they can also lose trust in their leaders. That’s never part of any playbook for success.

Clear Vision and Strategy
Clarity provides the direction that is critical to getting things done, which correlates to the valuation of the company. Management should fully grasp where the company is going and how to get it there. Vision and mission statements are helpful but the leadership team needs to actually believe and uphold what they say.

Adaptability
Leaders of businesses are frequently faced with changes and new challenges. They must be able to adapt to these circumstances quickly in order to be successful. This is especially true in this day and age when technology brings about change more rapidly. Effective leadership will not view change as an obstacle, but rather as an opportunity. When championed by management, this philosophy can be contagious throughout the ranks.

 

Ready to explore your exit and growth options?



Supportive of Development
It is important that employees understand how they are performing and are given paths to self-betterment. Management should help talent set goals, create timelines to achieve those goals, and regularly evaluate performance. Research shows that 69 percent of high-performing businesses rated company-wide communication of goals as a leading tool for building a team that is loaded with top performers. Also, achievements should be celebrated and rewarded. Even small gestures can make a difference.

No Micromanagement
Building trust, respect, and quality relationships between management and employees means avoiding micromanagement. When staff is micromanaged, they tend to feel the opposite of empowered and it can directly affect morale in a negative way. This also means that your leadership must have the ability—and willingness—to delegate.

Strong Decision Making
When you picture a great leader, you picture someone with strength and conviction, not someone who cannot make up their mind. Leaders need to be productive, results-oriented and have confidence in their choices. They must be able to balance reason with emotion, and know when the timing of a decision is critical to its results.

Empowering Coaching Mentality
Management should foster an inclusive team atmosphere that shows concern for the success and wellbeing of employees. This involves being supportive of staff, finding ways to help them grow, keeping promises, and providing an encouraging work environment.

Relevant Technical Skills
Studies show that technical skills fall at the lower spectrum when it comes to ranking leadership qualities. However, in order to help advise the team, the leadership should possess the proper skills and knowledge that apply to the business. If employees feel that management does not know what they are doing, they will see right through it and will struggle to take leadership seriously.

Time to Make a Move?
If you feel that a merger or acquisition is key to your future, please reach out to our M&A dream team at Benchmark International to arrange a deal that will turn your dreams into reality.

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Asset Sale Transaction Versus Share Sale Transaction

More often than not, the topic "asset vs share sale" has been discussed and debated at length. Although there are some aspects to consider, that could be beneficial to both parties and solely for the benefit of the other. Below are a few aspects to consider when deciding on a share/asset sale:

Sale of shares transaction:

In layman's terms, a buyer would be acquiring the incorporated business. This would include the assets and liabilities, goodwill, and inherent aspects of the business that would not have been capitalised.

The valuing of any business can prove to be a particularly complicated exercise. There are various aspects to consider as well as some key financial indicators. There may be sound reasons as to why specific objectives were not met in the past, but it is important that the buyer is aware of these permutations and understands the reasoning behind it. Likewise, a buyer would also be able to see opportunity/value in certain revenue streams, whereby the seller has been unable to secure orders in the past due to a variety of reasons. In a South African environment, Black Economic Empowerment status, vendor registration with key customers, integrated systems and technology, etc. are all aspects considered as intangibles and have been proven very difficult to value.  These are often subject to interpretation and most of the time the buyer would find reasons to reduce the company's value, purely because of personal interpretations and assumptions made.

In many cases, all shareholders are not always amenable to selling their share portion, as they might have alternative motives or plans for the business. To reach a successful outcome, it is important that all key stakeholders reach a consensus from the onset of the overall strategy and growth plan that they would like to achieve. The Articles of Association and/or the Shareholder Agreement may restrict shareholders from selling their shares.

Third party approval of the transaction is sometimes required, and this can often prove problematic and delay or even completely nullify the deal. An example would be a Landlord that often proves difficult when it comes to transferring the lease to a new owner. Their lawyers may require the buyer to come up with large deposits, provide personal guarantees, agree to a higher rental or require the new tenant to extend the lease term. This could prove detrimental to the transaction and there is a fine line to balancing the objectives of the respective parties.

From a seller's point of view:

  • The sale: A share sale would be regarded as the simplest way in disposing of a business. Subject to any arrangement/warranty commitment agreed between the buyer and seller during an agreed period, the seller would be relieved from his/her obligation.
  • Time: The seller may want to expedite the sale, however a purchaser will take his time when deciding on an acquisition. They would want to examine as much information as possible, extending the length of time to complete the transaction. Sale of share transactions typically takes longer to complete than the sale of asset transactions.

Furthermore, the buyer's legal team and advisors will insist on various protections for their client and would want the seller to provide warranties, guarantees and indemnities to limit any risk on behalf of the purchaser. The negotiating of these terms can also contribute to further delays in the successful completion of the transaction.

  • Personal sureties: Over the years, the seller may have offered personal sureties to various parties.

When selling a business, these parties will generally not want to release or waive any sureties that are in place or transfer them to the new owner. These loans/liabilities will generally have to be cleared by the seller if he wants to be relieved of his/her responsibilities under the personal surety

If the seller fails to remove himself as a surety, he/she will put themselves in an onerous position and is exposed to risk in the sense that he/she has no control of the business, once sold.

  • Professional fees: Share sales are more expensive when it comes to professional fees as there is usually more work involved, during the due diligence phase and the legal process.

From a buyer's point of view:

  • Tax advantages: Should there be an accumulated loss existing in the company, those losses can usually be carried forward to be written off against future tax liabilities.
  • Risk: Buying shares is a lot riskier for the buyer as they would be taking on all the business liabilities, and the true nature/cost of some of the liabilities may not be fully apparent until a year or two down the line. There could also be liabilities that the buyer had not discovered during the due diligence process.
  • Transfer: Generally, customers and suppliers' relationships would transfer over seamlessly. The business continues operating without any major interruptions and by acquiring the shares, the buyers become owners of the assets (tangible & intangible) and associated liabilities.

Asset sale transaction:

As mentioned earlier, the buyer would prefer an asset sale as opposed to a share sale. This is purely because the buyer would have identified the key assets to produce future income, not take ownership of any associated liabilities, and would limit their exposure to unidentified liabilities held against the company.

A buyer would be able to write off wear and tear allowances against the assets purchased, thereby creating a favorable tax structure for the acquirer.

In terms of an asset valuation, this can also prove to be very complicated as there are a couple of methods of determining asset value, with the following methodologies applied:

  • Value in use
  • 2nd hand value
  • Book value
  • Replacement value
  • Expected useful life (Overall state of assets)

A buyer would normally dictate the method to be used, however there must be a consensus between the seller and the buyer when determining a value.

A buyer would typically drive an asset value down as far as possible, but would need to substantiate this together with independent valuations, market trends and foreseeable production. Similarly, the seller would like to ensure his value is protected and supported by trade history and sound future projections.

Intangible assets such as patents, trademarks and customers lists are always difficult to value. However, when they are backed with a legal document that helps create barriers to entry or where a  service level agreements have customers tied in with long-term contracts, this assists the buyer in determining value and alleviates the seller from encouraging the buyer.

From a seller's point of view:

  • Better negotiating power: As buyers prefer to buy assets, the seller can often negotiate to get a higher net benefit for himself under an asset sale than a share sale. The seller is taking on the responsibility (and cost) of clearing the liabilities and would therefore require a higher reward.
  • Quicker sale: As there is less due diligence required for the buyer to perform in an asset sale, the transaction can often be completed more quickly.
  • Retained assets: The seller can choose which of his assets will be sold and which will be retained.
  • Taxation: Sellers will be exposed to CGT as well as withholding tax.

From a buyer's point of view:

  • The due diligence process is less cumbersome and far easier; Assets still need to be thoroughly assessed and the true value of the assets needs to be determined. However, less emphasis needs to be placed on creditors, as these assets will be unencumbered, once sold.
  • Tax advantages: The buyer will in many cases be able to attribute the purchase price as the base cost of the new asset, and accordingly be able to claim wear and tear allowances against a greater amount.

When the buyer purchases assets from the seller's company, they may agree on a value for the entire set of assets, however the assets could later be revalued, once recorded in the books of the acquirer.

  • Loss of customers: It is important to effectively communicate to all customers the change of control and ensure there is minimal disruption to any client relationships.
  • Suppliers: The same applies to suppliers, and the sale needs to be effectively communicated with each supplier to ensure that critical relationships are not hindered.
  • Assets transferred: Where there are numerous individual assets - there are different routes to securing the title and can prove to be a time-consuming exercise. For example, the transfer of a licence works differently than the transfer of a lease, which works differently than the transfer of patents.

For a variety of legal, accounting and tax reasons, some deals make more sense as share deals while others make more sense as asset deals. Often, the buyer will prefer an asset sale while the seller will prefer a share sale. The decision on which route to go will be imperative and forms as the crux of the matter for every negotiation required to conclude a transaction successfully.

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Don't Kick the Can Down the Road

There are many things to consider when you are thinking of a potential exit, whether it be your own personal/business circumstances, the overall M&A market or potential tax implications.

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