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The decision to sell your business is likely to be the start of one of the most challenging and stressful phases of your professional career. For many, it is a once in a lifetime event. So, timing is key. Is now the right time? Do the latest accounts show the business in its best light? How about delaying until the next tier of management is in place? To answer questions such as these and help guide you through the process, the expertise of a corporate finance advisor (CFA) will be needed. Their advice can be invaluable in achieving a successful outcome – finding the most compatible suitor who will pay the best price.
This article (written by a lawyer, not a CFA) explains what input a CFA can have and how you should go about selecting one.
A CFA, often having an accounting background, is a specialist who can guide you through the sale process. They are not just intermediaries who ensure confidentiality is maintained during the marketing process. Their role is to advise on getting your business into shape for sale, preparing an advertising document (called an information memorandum or IM), identifying potential acquirers and negotiating the best terms and value.
However, choosing a CFA is not easy if you only plan to do this once. They are not all the same – some are nationally based multi-office firms who act for any business anywhere and adopt a hard sell approach, flooding the market with mailshots advertising a range of businesses for sale. This type can also appear aggressive at attracting your business. This might suit a business that is hard to sell.
Others distinguish themselves by their knowledge of the market, relying more on their own research and targeting their approach to a more limited number of active buyers. They can offer close support throughout the transaction, particularly on tricky accounting issues, and are often already on the radar of potential buyers of consultants, both in the UK and overseas. It is an advantage if they understand the sector and what the buyer is looking to achieve in any transaction.
The decision who to appoint is important enough to justify a selection process by producing a shortlist of potential candidates and then holding face-to-face interviews. CFAs will be very willing to do this and also, of course, will be well-rehearsed. Comparisons can be more easily made if each are asked the same questions at interview. There are many examples of open searching questions. Here are a few to elicit answers on some key areas:
To demonstrate sector knowledge:
“Explain the current trends in our sector”.
“How will you ensure that key overseas buyers are identified and brought into the process?”
It ought to be well-known that US and European-based consultants are attracted to the UK currently, and their names ought to be given even at this early stage.
Experience of deals:
“Outline the risks to us as sellers following completion and explain how a typical earn-out structure would work, both for us and the buyer”.
Type of services:
“What involvement do you expect to have in meetings and communications when the legal process starts, and if we are completing the transaction at 3 o’clock in the morning where will you be?”
Negotiating skill:
“Explain how, with clever negotiating, you have secured terms that exceeded even your client’s expectations?”
Marketing:
“Describe the process where you market the business – what is your input to the IM and how many people will know we are on the market?”
As for the CFA’s fees, it is usual for their main fee to be based on a percentage of the overall transaction value. An incentive is often included giving a higher proportion if the expected valuation is exceeded. This will be a success fee but they will commonly want an initial fee for the time consuming task of producing the IM and initial advice.
Some terms relating to a CFA’s fees may need careful review. For example, if you change your mind before completion but after a deal has been agreed in principle, you may find you are still liable for the fees. Attention may also be needed on the way the value of the deal is determined for calculation of the fees and also the timing of payment.
How do you start by identifying some names to short-list? One answer to this is to ask your current legal advisors or accountants if they can recommend any. As transaction lawyers ourselves we of course have seen many different CFAs. The cost of retaining one can be high but in many cases such advisors find by their negotiation skills extra “hidden” value, and so maximise the price achieved. This can more than cover the cost of the whole of the CFA’s fees: a case of good advice paying for itself.
Michael Archer leads the Corporate team at construction niche law firm Beale and Company (www.beale-law.com).
Michael would be happy to discuss this article and can be contacted by email at m.archer@beale-law.com or via the ACE’s helpline.
 download this article.
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