Planning ahead: how to maximise value when selling a business

Owners of asset management firms usually only sell one business during their lifetime, so getting the transaction right is important. Planning ahead is one of the key factors in ensuring that value is maximised - but what else is important?

Here are four essential areas owners should consider:

1. Plan for sales well in advance – Developing and implementing a strategy that gets the most value from selling your firm requires a considerable amount of work, so it is sensible to plan at least two years in advance.

Often the real value in selling a business can be found by identifying non-obvious buyers. Business owners need to put in place a timeline that allows for thorough research and analysis, while at the same time ensuring management time is not diverted from focusing on executing current strategy and trading. Some firms will choose to appoint a full-time person to manage the sale process. External advisers should be identified early on with a clear understanding of why adviser has been appointed, what gaps they fill and what they bring to your team and the process.

During the planning phase, it is important to ensure that your data, records and contracts are organised centrally and that your processes and procedures are properly documented. This gives potential buyers the comfort that the business is properly run and that you can move quickly if an offer is made.

2. Focus on maximising capital value – Buyers will want to assess the future cash flow they are going to get from acquiring a business, a proxy of which is a factor of AUM or a multiple of profits.

It is therefore important to identify the factors that will make your business more attractive at an early stage, such as the strength of your management team, the quality and nature of your client base and fund flows, whether you have a stable workforce and how scalable your business is.

If you see a large part of the value of your business in the brands of the firm and the funds, you should ensure that the intellectual property is properly protected. Getting your back office in shape should also not be overlooked.

3. Monitor the market – Look at the overall economy and consider whether there may be a better or worse time to sell your business. The micro-economic environment is equally important, so be attuned to what is happening in your niche as sectors can be seen as attractive for buyers even at times when the overall economy is struggling.

Additionally, stay aware of transactions involving competitors or similar firms; consider whether a recent transaction has taken the liquidity out of the market, or has news of a deal sparked interest among acquirers looking to execute their strategy.

The need to watch the market emphasises why preparation and being ready to sell your business at short notice is essential.

4. Be in control of the deal – Sellers will want to do a deal with a buyer who is going to bring the best value, so how you position your business is important.

Be aware of your firm’s weaknesses and be on the front foot with these – don’t leave it to potential buyers to discover negative points through due diligence. Some issues can be fixed in advance of a sale, but acquirers will usually be aware they are not buying a perfect business so it could be that instead you need to offer a range of ideas as to how things can be resolved.

Finally, be honest with yourself about what your minimum price is and if the deal doesn’t work, be prepared to walk away.

Disclaimer

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

The tax treatment depends on the individual circumstances of each client and may be subject to change in future.

Smith & Williamson LLP

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The word partner is used to refer to a member of Smith & Williamson LLP.

DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.