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Exit strategy and planning – Getting the most for your company when you decide to sell – Part 3

Part 3: Enabling issues which should be in place before a sale 

These issues will not necessarily provide a premium valuation, but the absence of them could lead to some discount in the valuation or might hold up a sale.

  • Shareholders agreement regulating the rights of all shareholders and ensuring that minorities can be included
  • Key staff and directors service contracts ensuring that the management and technical know-how won’t walk out the door as soon as a sale is made
  • Share incentive schemes locking in key personnel
  • Employee contracts, handbook and policies ensuring all employment law and regulatory compliance issues are up to date
  • Supplier Contracts are in date and valid; beware “change of control clauses” which could very well reduce value or lead to specific warranties
  • Customer Contracts are in date and valid; beware “change of control clauses” which could very well reduce value or lead to specific warranties
  • IPR, patents, trademarks, copyright, know-how are properly protected and documented
  • Business Plan and financial forecasts are prepared, up to date and it is possible to trace historical actual performance against budget; also that all future working capital needs are identified
  • Corporate profile is raised in the 2 years leading up to the sale; special attention to web presence and PR activity in your market sector
  • PR aimed at potential acquirers to ensure that they are aware of you, your position in your market and have a positive image of you
  • Health and safety compliance is up to date
  • Quality systems are in place e.g. ISO9000 / EFQM, Investors in People  etc
  • Register of contingent liabilities is up to date and action is being taken to minimise exposure; particular attention to Industrial Tribunals and quality issues
  • Up to date annual financial statements filed at Companies House
  • Regular and timely management accounts are prepared and analysed
  • Up to date share register filed at Companies House
  • Up to date fixed assets register including copies of purchase invoices for major items
  • Up to date schedules of HP, Lease and rental agreements including copies of all agreements; note this extends even to fire extinguisher service/rental agreements

Due diligence preparation

The purchaser and their financial backers will undertake a process of verifying the financial, operational and legal information you will provide during the sale process.

This process is called Due Diligence and will require you to provide hard copies of a wide range of documents related to your company and its activities.

Paying attention to all the ENABLING ISSUES will cover most of the issues as it should then be a simple matter of extracting copies of the data for the Due Diligence response.

In particular, all customer contracts should be extracted, reviewed and filed together with an index and summary of each contract with particular attention to pricing, payment terms, variations, and change of control clauses.  Then these files can be updated as new contracts are put in place or as existing contracts change.

The same is true of supplier contracts.

Do

  • Prepare business for sale
  • Appoint specialist advisors
  • Ensure accounting and legal entity records are accurate and current
  • Be conservative with financial forecasts
  • Protect IPR
  • Remember cash is king
  • Maintain competitive bidding position

Don’t

  • Have unrealistic view on value and time scales
  • Hide skeletons or bad news
  • Incur/invest in non productive costs/assets before sale process starts

More to follow next time.  Please feel free to get in touch with me at peter@klopartners.co.uk or on 07904 766230, or for more information, please check out my websites at www.klopartners.co.uk