WINDING UP to the end of the year
As we wind UP to the end of 2020 (I wish I could say winding down, but it never seems to be that way!), I thought it may be a good time for you to engage with your clients regarding wealth potentially tied up in their businesses. In many cases, you will find that your clients are aware of the need to plan for an exit, or at least to de-risk their wealth from their business. However, they may still be wary of what this may entail and are reluctant to get started. It may help to share with them some of these insights from a few of the deals we are busy with:
Tenacity is essential
We signed up a client some time ago in the plastics raw materials sector. Looking at the low level of competition in the sector, and their relative dominance, we were convinced that we could find them a premium buyer at a premium price. Things did not turn out quite as we'd planned. The traditional market felt that their margins were low and had other sector concerns, while international markets were wary of a South African investment in the sector. This is where tenacity is essential in our world, as it would have been easy to sit back, advise the shareholders to make some changes in their business, and defer for a few years. But the shareholders were in their late 70s and really did not want to go through a long process of turnaround. We needed to find a deal and make it happen. I am pleased to say we did exactly that, and concluded last month at a really good value, ticking many boxes for the sellers who could finally de-risk and, in the case of one of the shareholders, walk away almost immediately. I can assure you this deal did not “fall into our hands”; only a serious amount of hard work and tenacity got us there!
Non-binding or binding offers?
If you have watched any of our webinars you will know that a critical part of our process is calling for non-binding offers from interested prospects. It has the benefit of identifying the serious parties at the table, without them having to go through a detailed due diligence process. In some cases, the offers we receive are no more than an expression of interest, but it still helps us identify who we need to engage with and spend time with. More importantly, once we have identified the best acquirer with the best deal, we are able to work closely with them to address potential risks they may identify, or update them with the latest operational information to support their decision-making process. It is also an opportunity for the acquirer to spend some time with the business and build confidence as he or she moves from a term sheet and due diligence to binding legal agreements and ultimately, completion. We recently had a client who insisted we move almost immediately from non-binding offers to binding offers from prospects. The negative impact on deal value was profound!
Dealing with an acquirer who “backs off”
COVID-19 obviously had an impact on the businesses of both buyers and sellers. We had one case where the buyer’s due diligence was almost complete just as the lockdown kicked in during March this year. The buyer’s business was exposed to the logistics and hospitality sectors. They quickly announced that the deal was on hold as they needed to reassess their position and retain cash to assist their businesses through a potentially devastating period. We scrambled (during lockdown) to find a new acquirer for the business, but our client was most concerned that a deal was unlikely. Our client was of the mindset, “I’m done, I want out”. Believing that it would be difficult to sell his business during lockdown, and given that the business was “asset-rich” he started the process of selling off assets in July. At the end of July, the original acquirer reached out to us to restart the process! The reality is that there are many acquirers who are tentative, and when they signal that there is a delay or uncertainty it often means the deal really is off… but there are cases like this one where it is worth really understanding the acquirer’s situation and accommodating them wherever possible. This story does have a happy ending in that the deal is concluding shortly, and while the value was discounted (the seller did get some good value for the assets he sold) the deal is clean and the owner's legacy lives on.
There are so many lessons to be learned in the world of selling businesses. Every deal is unique and needs serious attention and care.