London, England -- "The time to sell is when wild horses couldn't tear you away!" That was a key message when Pembridge, Merrill Lynch and Pitmans brought a group of business owners together today for breakfast. Pembridge Partner Hugh Mason led the discussion and here picks up on the themes that emerged.
One of the pleasures of being a Partner at Pembridge is the opportunity to see how the wealth that comes from selling a business changes the lives of our clients. For some, it's an opportunity to fulfil some long-held ambition like sailing around the world; others seem hardly to change their day-to-day lifestyle. You can never tell. Pembridge helps someone transform their hard work into a few millions on average every three or four weeks, and everyone reacts differently.
For our colleagues at Merrill Lynch, the decisions faced by the newly-financially-liberated are a priority every day as they provide advice, wealth structuring and portfolio management.
Ken Chapman is Director of UK Wealth Structuring at Merrill Lynch: “I've spent the last 15 years advising wealthy individuals and families on wealth structuring and planning,” says Ken. “When most people sell their businesses, their first instinct is usually to pay off the mortgage but, beyond that, our advice is always not to rush - you've got time to think through your options.”
This assumes, of course, that you've taken the right advice in the run up to and through the sale to have all the options in front of you. Ken continues: “We tend to get involved to provide structuring advice just as deal terms for a sale are being finalized, to ensure that proceeds are received as tax efficiently as possible. Everyone's very focused on the sale but it's our job to help the entrepreneurs involved make sure they look to what happens afterwards too.”
Of course there's the small matter of building the wealth in your business before you get to that point. Rose Lewis has led most of the sales made by Pembridge Partners in the last seven years and her message is simple: start your prep early.
“It literally does pay to get your house in order by doing pre sales due diligence on your own company,” says Rose. “In practice that comes down to having your ideas on valuation and strategy clear so that, when someone comes knocking on the door, you look professional and can articulate a clear proposition to a potential acquirer. Doing your own due diligence in advance will save time in the end-game of the deal and it will give your side confidence that ultimately means you are likely to increase your valuation.”
Several of the busiensses at the breakfast had been approached by potential purchasers, or were considering an imminent sale. Wisely, they had thought through the role of their staff in realising value in ther business – the concensus was that keeping them informed and involved was critical.
Bringing in advisors early also emerged as a positive step, because it allows a management team to stay focussed on running the business and, ultimately, a better deal, partly because the advisors will have been thare and done it before, and partly because they could improve the tax efficiency of the deal.
There are many ways to structure an exit for a business founder and some inevitably could leave an entrepreneur exposed to risk beyond their control. Stephanie Perry, Corporate Partner at Pitmans, was asked if there’s any way for an entreprenuer selling out partly for shares in the business acquiring them could be protected against a fall in the value of those shares.
“It’s very tricky – once you’ve done the deal you really are in the same boat,” Stephanie says. “Of course it would be possible to draft a contract that somehow insulated an acquired business from falls in the value of the share price of the acquirer but whether an acquirer would ever sign such a contract is another question!”
The lesson here is yet again about preparation.
Rose Lewis comments: “It really does pay to do due diligence on a potential acquirer early and then structure the deal to balance cash on signature for the potential up-side later if all goes to plan. Everyone’s perception of risk and the future is different so there is never a ‘one size fits all’ deal. One of the advantages we find of working with a company as a non-executive director over a couple of years leading up to a sale is that we get to know a business owner really well while we are mentoring them through getting the company into shape. That insight is fantastically helpful as I set out to negotiate the best possible terms for someone when a sales deal starts to crystallise.”
Download notes by Pembridge , Merrill Lynch and Pitmans about the issues involved in selling a business.
If you would like to attend a future Pembridge breakfast event, or to explore the potential value you might build or realise by growing and selling your creative business, please contact Eve Daniels. For further information about Merrill Lynch's Wealth Management services, please contact Dan Hall.
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