JPAbusiness has sold a number of businesses recently and we have been delighted to receive feedback and comments from our clients.
This feedback actually contains some tips for all potential vendors, because it highlights a couple of the keys to success for business sellers.
Client case study 1: Creating a competitive market
Business 1 was a sheet metal fabrication/engineering business located in metropolitan Melbourne.
Key selling points included:
- $4 to $5 million turnover
- long-established brand and business
- a solid and repeat customer base that was well regarded across the industry.
Selling challenges included:
- business operating in a difficult industry due to tough market and a lot of consolidation in recent years
- a long history of solid performance but, quite recently, marginal business maintainable earnings (BME).
We facilitated a sale to the incumbent general manager in the business.
At the end of the transaction the vendor let us know he appreciated our efforts, in particular our “assistance in ensuring a competitive and successful sales transaction”.
The key word for sellers is ‘competitive’.
Sometimes the ideal buyer for your business is right under your nose i.e. a long-established employee, or a competitor that sees a strategic scale opportunity. However, getting this party to pay reasonable value for the business is often difficult. This may be because they don’t have access to the necessary funds, or because they don’t perceive the same market opportunity that someone outside the business, operating elsewhere in the market, may see.
Our focus was to create a competitive market for the business. We did this by instigating a direct contact program of some 30-plus similar and competing, as well as complementary, businesses in the broader engineering and fabrication sector throughout Melbourne and Sydney.
We contacted those parties directly and sought their interest in the strategic opportunity of buying this business. The opportunity we promoted was not the ‘healthy BME’, because there weren’t strong earnings, but instead the opportunity to benefit from strong relationships with key customers and a solid workforce of skilled labour.
As a result we had four expressions of interest for the business from a sector that industry commentary indicates is doing it tough in many segments.
By undertaking a direct contact program we were able to create a competitive market which helped fashion a deal and terms which were strong in the vendor’s eyes and which were also reasonable, because they had been tested in a competitive market.
Case study 2: You can’t afford to sit back and wait
Business 2 was a long-established, Australian-based business in the food and beverage labelling and coding sector.
The business manufactured and distributed its own equipment, as well as distributing other manufacturers’ equipment.
Key points included:
- $25–$30 million turnover
- Australian-based business, with some international distribution
- two separate business lines
- four shareholders, three of whom worked in the business full-time.
This business had showed promise over the years but its business maintainable earnings (BME), while positive, had a variable recent history. The shareholders decided it was time to exit the business together.
Challenges to selling this business included the fact there were two distinct business lines, the complexity of international and domestic capability, the somewhat declining earnings, and the multiple shareholders’ individual requirements.
As a unique business, finding the right match for its mix of risk, exposure and opportunity was always going to be a ‘long game’.
It took about two years to sell the business and over that time we had the business ‘almost sold’ a number of times, either in parts to particular players both overseas and domestically, or in its entirety.
Ultimately it was about finding the right match which met with the four separate shareholders’ requirements in terms of value and deal terms.
The buyer in this case was a company that enquired about the business very early on in the marketing process and ‘waited in the wings’ for a long time before reactivating their interest.
Some of the feedback we received from our clients after the transaction was regarding our “persistence and dedication right up to transaction completion”.
There were two lessons here:
1. Persistence pays off
A lot of business brokers in the market today treat selling businesses like selling homes. In other words, they list the proposition, advertise it, and then it sits on a website while they wait for an interested party to come to them.
Our approach is very different; you can’t afford to sit back and wait, either.
At JPAbusiness we constantly research and work over opportunities, target individuals and companies that may be interested in a business, and approach them directly. We take a persistent, dogged approach to contacting and re-contacting these parties.
Sometimes parties are contacted several times before they yield results, and even a result of “no, I am not interested, for these reasons…” is of value. This is because at least you then know how substantial or otherwise the interest is in the market, and you can use their reasoning to inform, and possibly adjust, your offering.
There’s also the fact that sometimes the timing isn’t right for both parties, but it may line up a little further down the track – as it did in this case. The key is to keep chipping away, keep the lines of communication open and ensure a ‘competitive environment’ when parties are ready to demonstrate their interest.
2. Vendors need to agree on market value
When going into a sale transaction like this, where there are a number of shareholders – all with slightly different expectations for valid personal reasons – we recommend obtaining a detailed business valuation or market appraisal.
If you are thinking about selling your business, or you are interested in seeking a business valuation or market appraisal, contact the business advisory team at JPAbusiness for a confidential, obligation-free discussion.
James Price has over 30 years' experience in providing strategic, commercial and financial advice to Australian and international business clients. James' blogs provide business advice for aspiring and current small to mid-sized business owners, operators and managers.