Considering selling your business or raising external investment? Our team have pulled out the top three things you need to consider.

The business must be prepared for a due diligence exercise

Due diligence is becoming more intense, as buyers and investors want to make sure they are making the correct investment decisions, particularly in these times of uncertainty. The more issues that come up in a due diligence exercise, the more likely it is that the deal will fall through, or terms will change significantly. Imagine viewing a house with the idea that you might buy it and then you try the tap and it doesn’t work, or the carpet is stained. Whilst these issues may be easily fixed, your immediate question is “what else is wrong?” This is the same with a potential buyer or investor, so you want as clean a bill of health as possible. To do this, it is all about planning in advance – we would be happy to discuss with you what this means and how we can help.

The shareholders must be prepared for an intense process

The process involved in selling a business or raising external investment is intense and will require significant time commitment from the sellers/management team. It is important to be mentally prepared for this. As above, it will involve time to prepare the business for a due diligence exercise, meeting with and speaking to potential investors/buyers, dealing with the various stages of negotiation and legal drafting, and then the big one – the due diligence exercise itself. It is helpful to have an adviser on board to help with all of the above to take as much away from you as possible – but it will still require significant commitment!

The business must have a credible growth plan

The best time to sell a business is when it is demonstrating sustainable growth, with a clear and credible vision as to how the business is going to grow further – definitely before it reaches any kind of plateau. A seller may not want to exit too early as they may not achieve maximum value, but at the same time must avoid potential hiccups that could result in value being reduced. These hiccups are often unexpected or could be caused by wider economic factors that are out of the control of management (such as Covid-19).

Similarly, if you are looking for investment, you want to have as much traction and as many success stories as possible before speaking to investors – not only will this increase investor appetite, but it will increase the valuation you achieve. You still need to make sure that the growth plan is realistic and credible though – everyone shows a “hockey stick” of future growth, but proving to the investor that yours is achievable because of what has happened in the past (i.e. some of it is committed, the pipeline/order book is extremely strong etc.) is critical. Ultimately, you need to show the investor that they are going to make significant returns on their investment!

If you are thinking of selling your business or raising external investment we’d be happy to discuss how our experienced Corporate Finance team may be able to help. 

Learn more about the process of selling a business and what’s involved here.