KEY POINTS:
Mark Lowndes, a partner and commercial lawyer at Lowndes Associates, on managing a business sale in less buoyant times
How is the mergers and acquisitions market doing?
Mergers and business sales and purchases are continuing. In less buoyant times, with businesses needing to rationalise and companies looking to raise funds by disposing assets, growth through acquisition can become a key option. Receivers and liquidators have companies to sell.
So has anything changed in this market?
The climate has. There are fewer buyers and they are more discerning. Buyers have to be more cautious and thorough, and vendors have to offer a well-groomed and surprise-free business.
What's the most common mistake made in the process?
Only some CEOs and business owners understand the demands of mergers and acquisitions (M&A). Successful business creators and leaders don't always know how to buy or sell a business. These are different roles and require different skill sets. In a larger transaction, having senior in-house executives experienced in M&A to lead the transaction is helpful.
What should the management of a business for sale focus on?
They have to start vendor due diligence between three and 12 months before a purchaser's due diligence. Spend the money to have specialists crawl all over the business - as the purchaser's executives and advisers will - to find and sort out loose ends. This leads to an accurate information memorandum describing the business and a "no surprises" due diligence for the buyer. Allow for the possibility the transaction doesn't proceed.
What should the purchaser focus on during the process?
Stay detached and leave the door open to withdraw until the last possible moment. CEOs and business owners can become committed psychologically to "doing the deal" way before the due diligence and associated analysis are completed.
What is the main human issue in a transaction?
Business people often forge ahead by focusing on the main issues and turning a blind eye to risks and problems. For a vendor, this can mean not identifying and fixing significant issues that will unsettle a purchaser. For a buyer, it can mean being committed to the deal and minimising, or ignoring, a key exposure.
What is your advice to owners looking to sell their business this year?
Start three years ago. The price is better when a business' board, professional management, accounts, finances and legal framework have been groomed.
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