Karen Houghton of Mason Hayes says that sellers can unlock and maximise value in their businesses if they follow some key pre-sale steps.
If you are thinking of selling your business, due diligence is an essential part in showcasing the target business (“target”) to potential buyers. Getting this part of the sale process right is critical as it sets the tone for the seller(s) being in control of the sale process. With the right preparation and having an experienced advisory team on-board, a seller can enhance and maintain the value of the target throughout the process by carrying out some important pre-sale steps. Here are a few “Top Tips” to help prepare your company for sale:
# 1: Getting the right tax advice
A key factor for any seller(s) to consider in advance of any proposed sale is how they can minimise their personal tax exposure. This may largely depend on how the deal is structured and funded. However, getting pre-sale tax advice is essential in ensuring that a seller can put in place measures to minimise their tax liability, e.g. obtaining clearances, and factor into the deal timetable the period of time which is required to benefit from such measures.
#2: Appoint an experienced corporate financier
Appointing an experienced corporate financier to act for the seller(s) can be invaluable. Ideally you should ensure that you appoint a person or firm who has knowledge and expertise of the telecoms sector. This will reap many benefits because, in particular, they will be able to assess the likely interest in the target, research and identify potential buyers as well as advise how the deal should best be structured for the benefit of the seller(s).
#3: Be prepared - know about any skeletons!
Sale processes which are the most successful and realise the most value for seller(s) are undoubtedly those which have been well managed from the outset. The key for any seller(s) is to ensure they are prepared and are aware of any issues which may be identified by a potential buyer - there is nothing worse than a potential buyer carrying out due diligence on a target and identifying an issue that the seller(s) was not aware of.
#4: Appoint an experienced telecoms lawyer
One of the best ways to prepare for a sale is to carry out a pre-sale legal audit to anticipate any issues which may arise during due diligence. Appointing an experienced telecoms lawyer who has specialist corporate knowledge, is familiar with contracts typical to the industry, can identify any issues which may arise during due diligence and then advise and guide you through the main transaction is essential for a seller. If there is going to be a price chip by the potential buyer it is, typically, after completion of their due diligence investigations. It is far better for the seller to have anticipated any such issues and have received advice from their lawyer how the issues can be overcome rather than receiving an unexpected price chip. Key areas to consider are:
Material contracts: What are these? A potential buyer will be particularly interested in contracts which account for 5%+ of the target’s annual turnover;
Change of control: Do any of the target’s contracts contain clauses that could allow the contracting party to terminate the contract should the target be sold?
Long-term contracts: A potential buyer will focus on any long term commitments entered into by the target and will consider if there are for, example, minimum commitments that must be met.
#5: Prompt due diligence responses
A potential buyer will raise numerous questions to a seller(s) about the target. It is important for the seller(s) or their advisers to promptly respond and provide the potential buyer with a sufficiently detailed response. This will help later down the sale process when the disclosure exercise begins. If there are several interested buyers, ensure that all responses are made available to everyone so you do not have to duplicate work and everyone is treated fairly.
#6: Check your security and guarantees
Do not under-estimate how long it takes to discharge any guarantees or security that your bank may have provided to the target or that the target may have given to a third party. One of the first tasks that a potential buyer will do is to carry out a company search on the target which will reveal any security or guarantees. The seller(s) will be required to procure the release of the relevant guarantee or security and to deliver evidence of release at completion. Make sure you have engaged with your bank or the relevant third party to ensure that they will agree to provide the necessary release(s) in time to meet the deal timetable.
Karen Houghton was formerly Director of Legal Services at a leading telecoms company and prior to that practised at one of the largest international law firms in the world. She has over 14 years’ of legal, operational and industry expertise in both Corporate and Commercial matters. Her unique blend of industry and private practice experience means she understands the issues facing today’s telecoms companies and can give insightful and comprehensive advice.
For a free and confidential discussion about your company’s needs you can contact Karen at karen.houghton@masonhayes.co.uk