Bob Screen guides brokers through the options when considering a trade sale
With market consolidation here to stay, more and more brokers are considering their options. Many are reluctant to be acquired, seeing it as an end to the business they've nurtured over the years.
Before sitting down with a potential purchaser, it is critical to analyse your motivations and be honest about the issues that keep you awake at night.
Can your business not only survive, but thrive? Is product access getting harder?
Are you willing to fund the investment that is now needed? Or it is simply time to bank some of the capital that you've built in your business?
Whatever your motivation, be clear about it and judge whether a trade sale is the best option.
Make sure you've kept up-to-date with the life plans of your fellow directors. Sitting across the desk from a potential suitor is not the best time to find out about them.
Ask yourself whether you will be happy working for another organisation. Then think about your staff. Acknowledge their contribution to your success and ensure you approach organisations that can offer them continuity and development. Redundancies aren't an inevitable outcome of a trade sale.
Be clear in your mind that all potential purchasers are not the same. Each may have different drivers for buying your business, in terms of scale, timing and end-game.
You may have clients that complement theirs and be strong in a specific trade or geography, manage a profitable scheme or simply a well-managed business. In short, find out as much about potential purchasers as they do about you.
You will want maximum value from your investment so, to demonstrate its worth, make available full financial records, management information and realistic business forecasts.
The better you know your business, the easier it will be for a third party to assess its value. Accept that the sale of your business will not happen overnight. Be realistic about the management time you will need to dedicate to this.
If you feel unable to devote sufficient time to the process or you are reluctant to open up your business to external scrutiny, then don't embark on the process. Resolve any doubts and be clear that the project will need to be nurtured to a successful conclusion.
Cultural fit is crucial. It's invariably clear from the outset whether you and your purchaser view the world and run your businesses in the same way.
Try to sell to a buyer with a similar approach. This does not necessarily lead to a perfect world without differences, but it is important to get the basic elements aligned.
Will your staff be retained? Will your brand continue? How accountable and involved will you be in your company's future?
Understand how your buyer will be funding their purchase as this can give an insight into their plans and help you to choose the right partner. If they are funding directly, your future is likely to be less pressured.
Externally funded purchases where venture capitalists keep a watchful eye on targets can often result in a less benevolent regime, with faster exits and tighter budgets.
Negotiating a trade sale carries costs in terms of legal and financial advice. While using the best professionals can represent a significant outlay to a smaller broker, it can be a false economy to opt for locally-based and less experienced advisors.
Be open and upfront in the due diligence process. Something not disclosed to your purchaser before commitment can resurface as a problem to both the new business and your relationship.
A trade sale has got to feel right. Don't take the step lightly and focus only on the pot of gold at the end of the rainbow.
You need to make clear and rational decisions and be realistic about the world post-sale. However, this is also a time to trust your instincts. As with many things in life, relationships are critical. It is important to feel comfortable with the new organisation and its key people.
It's been a long process but if you've been honest with yourself, you have the buy-in of fellow directors and there is now a solution to the issues that keep you awake at night.
You will probably still feel a little unsure, though at the same time excited by future prospects.
You will also feel, possibly for the first time in years, that you are going to be able to enjoy the fruits of your labours.
In that case, take the plunge. Selling your business to a like-minded company can be a positive new beginning, not the end of the road. IT
' Bob Screen is managing director of Vega Insurance Services