Building value for the sale of your company

 


Terry Irwin
Managing Director
TCii Strategic and Management Consultant
terry.irwin@tcii.co.uk
020 7099 2621

 

1. Build the niche

A focused niche player will attract buyers because it is likely to have strong margins, be more profitable, and have greater barriers to competitive entry.

A+ companies have overall profitability in the range of 18%-plus, as a percentage of sales, and sometimes go as high as 25% or 30%. They are often dominant players in their particular focused market, and they usually offer some products no one else does.

They typically have a defined business category that they understand well, and this enables them to be first with changing technologies and trends in their segment.

2. Build a financial track record

Buyers look for strong profitability, steady progress over recent time periods, and solidity of fundamental balance sheet. The more you can keep costs well controlled and profits growing, the better.

As you build, your plans should include steady and fairly aggressive pay‑down of debt. The truly healthy company, with minimal debt and/or strong cash, is highly reassuring to buyers, and generates strong confidence quickly.

3. Understand growth potential

Even the best niche market in the world, if its total potential size is tiny, is not very attractive. Measure the size of your primary customer segment today and its predicted size taking into account future growth.

As you begin to see weaknesses in the market road ahead, look for possible replacement segments in emerging new markets. Analyse demographic and retail trends, and every other bit of information you can glean, to give you glimpses of the possible future.

4. Secure the intangibles

Intangible assets enhance value. The most obvious intangibles are:

  • patented products
  • products subject to exclusive supply agreements
  • trade names and trademarks.

Be diligent about the legal maintenance of such intangibles.

An equally important – but often neglected – intangible asset is key people. A firm, long-lasting non-compete agreement for top management should be in place well before you start to think about selling.

5. Do your housekeeping

“Housekeeping” means:

  • maintaining clean financial records, with annual audits or reviews by an outside accountancy firm
  • having defensible tax positions – nothing outrageously risky or “on the edge”
  • having clean environmental and safety records
  • complying with governmental rules and regulations
  • fully and properly adhering to rules for taxes.

In addition, any buyer paying an aggressive price will expect the seller to make certain representations and warranties about the condition of the company being sold, and to say that he has fairly disclosed known threats and claims. He will also have to attest that he has told the truth and has not misled the buyer intentionally.

Positioning for the future

You can build into your plans the mechanisms to enhance the value of your company. By doing so, you ensure that your company will be worth more in the future, and you increase its stability and security right now. You make your employees safer, in that they will be more desirable to a future buyer of the premium company. The outcome can be the best possible for everyone.

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