Selling a business can be one of the most difficult decisions for an owner-manager to make. The prospect of selling can be very emotional and, while maximising shareholder value is important, the owner-manager also wants to see the business sold into ‘good hands’.

There are a number of options available to you if you are looking to sell, including:

  • Sale to the incumbent management team (MBO).

  • Sale to an external management team (MBI).

  • Sale to a combination of the above (BIMBO).

  • Sale to a trade buyer.

  • Sale via a flotation.

Recent uncertainty in publicly quoted equity markets has greatly reduced exits via admissions to the principal stock markets and there has been limited new money raised on the secondary markets such as AIM.

Widespread caution in the corporate market has also led to a decline in the number of sales to trade buyers.

But it’s not all bad news. Disposals to management teams remain more popular, with financial institutions maintaining a healthy appetite for funding good quality MBOs, MBIs and BIMBOs.

Sale of part of a company’s shareholding to a financial institution is increasingly popular. This allows the owner-manager to realise value immediately, while retaining a portion of the equity. It has the advantage of providing the owner-manager with financial security now and a share in the future. From the funder’s point of view, it represents a limited risk investment, as the owner-manager remains involved in the company with an incentive to continue growing the business.

The tax regime in the UK has never been better for business owners, largely due to the changes in Capital Gains Tax. At the beginning of April 2002, a change in taper relief on Capital Gains Tax from the sale of business assets reduced the qualifying period in which a business owner could get full tax relief (equates to an effective tax rate of only 10%) to just two years.

It is important that market conditions are right for a sale, as well as the current performance of the business. You will have a much better chance of getting a full price for your business if it is in the best of health. It will prove beneficial in the long term to wait until the time is right, rather than rushing into a sale.

Also never underestimate the length of time it can take to sell a business and what you will have to go through during the sales process. If at all possible, try to plan a couple of years ahead.

Grooming the company

To maximise shareholder value, the company needs to be presented in the best possible light, and there are a number of measures that can be taken:

  • An experienced and cohesive management team needs to be in place, whether it is a sale to the incumbent team or not.

  • A pattern of increasing sustainable profits should ideally be evident.

  • A solid infrastructure base should be in place.

  • Tax planning should be undertaken for all share-holders.

  • The legal structure of the business should be reviewed to ensure it is not unduly complicated.

  • The company’s underlying cash should be maximised by careful management of stock and debtor and creditor days.

  • Capital expenditure should be carefully managed to protect the company’s underlying cash, while not detrimentally affecting the ongoing trade.

  • There should not be any significant unresolved litigation.

An independent pre-due diligence review is often performed by some of the larger corporates. It is also advisable to research the type of companies that would provide a good ‘fit’ with your own, and which would have the money to spend when you are ready to sell.