When husband and wife entrepreneurs Steve and Claire Andrews sold their agency Whitewater to the Direct Marketing Group earlier this year, they each became millionaires overnight. As the documents were signed, they made the dream of many a creative entrepreneur come true, waking up the next morning to lives that had changed forever. There isn’t a secret to their success. They planned early for the exit, and brought on Pembridge to help them groom their business for sale. Steve reflects on the first meeting with Pembridge, which took the form of a five-year planning session.
“We knew we wanted people with us who had been there and done it before,” he says.
“The focus on the end goal really struck home. We started the planning session working backwards from the sale, not forwards from where we were, and when I pulled out the numbers the other day I was amazed to see that we hit the numbers from that first meeting almost exactly in the years that followed!”
With their deal signed, Steve and Claire woke up £2m richer with a further £1m to follow based on performance during the earn-out period agreed with the Direct Marketing Group. A good return on eight years of hard work and one that will set up their young family for the future.
Six golden rules on how to sell your business
- Set ruthless targets. “Having a clear idea what we would be doing in Year 1, Year 2, Year 3, Year 4 and Year 5 was vital. Rose Lewis from Pembridge chairing the company for 2 years brought in discipline to help the team stay on track."
- Do a reality check. “The industry benchmarks that Pembridge brought to us were incredibly helpful in creating a kind of dashboard of dials using which we could drive the company with confidence.”
- Be transparent.
- Rein in the Big Ideas. “The advice from Pembridge was to focus on core business and when we started doing what we already did better, the results started coming quickly.”
- Stop pitching, start listening. “We realised that actually it was better to hang on to existing clients and really listen to them. Doing that cut turnover of clients and, frankly, if we had done that earlier we would now be twice the size.”
- Make sure the faces fit. “We had a senior figure in the business who was highly respected in the industry, but who ultimately did the right thing by leaving the team. We should have faced up to that mis-alignment earlier and since he took the decision to move on, growth has increased significantly."
Other tips on how to sell your businessManagement Buy-Out: A MBO is one of those 'genie from the bottle' processes that is very hard to stop once it's underway. It can be quite unsettling if a management team, rather than the owners of business, initiates it. Steve and Claire knew how to do Direct Marketing but they were also honest with themselves about the gaps and weaknesses on their team when it came to building a valuable business. They invited Pembridge to join the board to support the process of growth and sale.
The sales/delivery separation: There’s a time when a growing business needs process and follow-through, as much as it needs a strong sense of direction. Steve feels that Whitewater didn’t achieve the separation between sales and the delivery teams that they would have liked, and that he probably should have stepped down as MD, on the grounds that he’s a leader not a manager. David Shiell, Managing Director at Web Liquid, a leading digital advertising agency, agrees that the sales/delivery separation issue is one that seems particularly difficult for creative companies: “New business development people don't usually work in advertising. Clients want to buy from the ideas people,” he says. But an ‘ideas person’ isn’t necessarily the right person for all stages of growth.
Control and management: For Whitewater, the sale process happened in two phases. Steve Andrews picks up the story again: “We had two or three independent approaches in 2005. Responding to those uninvited offers meant that we lost energy and focus on the real business. Over Christmas 2005 we made the firm decision to sell, but we decided to do that in a controlled way.” Keeping control and managing the process made a huge impact on the sale price. With four potential purchasers engaged in a formal process, the true market value of Whitewater as a business was realised.
Cultural fit: Ian Mason, Senior Manager for Creative Industries at Royal Bank of Scotland agrees. “Cultural mis-fit is definitely one of the top three reasons I’d say mergers and acquisitions sometimes don’t work out,” he says. “In my experience, the other two are ego, or a poorly thought-through integration process. For example, if a team is forced to use weak internal suppliers within a group that they’ve just been integrated with, the quality of both work and motivation will suffer.”
Listen (genuinely): Steve and Claire at Whitewater made sure that all the senior management team stayed closely in touch with the business sale process. “It was vital to keep them in the loop with regular updates,” says Steve, “but we also made sure that we genuinely listened to them. In the end the whole team was behind the decision that we made on a buyer and that gave us all confidence.”
A united approach: Richard Mullet from The Legal Partners suggests that clients try to agree valuation annually. “That keeps everyone rowing in the same direction and able to respond intelligently if an offer does come in. But realistically it’s going to take 12-18 months for a sale to happen in a controlled process. You need to take time to make decisions, especially when you feel pressured. Take your life-partner with you through the process so that they can tell you to sleep on a decision when someone else is trying to force your hand.”
Plan for a new life: Julie Mccarthy, Private Banker at Coutts, works with many entrepreneurs who sell their businesses. Her advice is to take your time and stay in control when it comes to managing your new wealth. “Our advice is that you really don't have to do anything in a hurry. Sure, you need to factor in tax planning and wealth management during the sales process. But when the deal is done, buy the things you want to buy and don't get locked in to the many schemes that will be pushed hard at you following publicity after the sale. You can put the cash in the bank for 6-12-18 months while you get used to life being different and then decide.”
Thinking of selling your business? If you would like to explore what might be involved in selling your business, Pembridge would be pleased to talk through the process with you. Please contact Paula Pattriti for further information. Coutts also has a range of relevant workshops and seminars you can browse online.
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