FREQUENTLY ASKED QUESTIONS
And the answers you need
Please see the Q&A below to get answers to the most frequent questions we get asked.
If you have a specific question, not answered here, then please contact the team using the contact page.
HOW MUCH IS MY BUSINESS WORTH?
LockDutton Corporate Finance provide free consultations to help you understand a likely indicative valuation for your business. The intrinsic value of your business can be calculated with reference to a discounted cash flow forecast, or through the use of multiples (eg PE, Enterprise Value/EBIT or EV/Sales) generated from analysis of market-relative comparable data. Reviewing comparable transactions or comparable companies is an essential step. However, the only valuation that truly matters is one backed by an offer made in the context of a sale process.
The value will depend on the wider market dynamics, together with a number of quantitative and qualitative factors such as management depth and capability of the team, the historic and forecast financials (with particular reference to the sustainability of its profitability, growth and cashflow generation) adjusted for one-off and other factors to "normalise" earnings, the financial performance of the business relative to its perceived or nearest competitors, the ability of the business to sustain its technology, products or service to meet a market need (and outperform the competition), the overall size of the market opportunity, whether control is sold, the synergies available to a strategic purchaser and finally, other behavioural aspects linked to how the auction process is run and the level of interest from a buyer.
HOW LONG WILL IT TAKE TO SELL MY BUSINESS?
The typical time taken to sell your business can be from 5 to 12 months though a number of factors will impact whether the timescale is significantly more or less than this. We have worked with business owners and management teams on projects that have taken a few months as well as up to two years. In this case, the decision to sell was delayed by the shareholder during which time various issues impacting the business were resolved. Factors that may impact the sale of your company may include:
The quality and availability of pertinent information required for an Information Memorandum (IM) at project kick-off. This will cover the corporate history, strategy and growth opportunities, industry and competitive position, the management and employees, sales & marketing, customers & suppliers, operations, property, legal, regulatory and other matters, and the financials;
A critical element to an IM is an integrated cash flow forecast which is supported by a business plan. This will be complemented by management accounts that show performance against budget;
Ongoing financial performance and the impact of any material change in customers or suppliers;
The wider economy & the mood of investors for your type of business (scale, industry, geography);
The status and experience of the investors or acquirers you seek to sell shares to. A particular investor's appetite and ability to complete the deal in the timetable sought will rarely be the same as another investor or purchaser. The due diligence which is perceived as necessary will often impact the period of exclusivity required. And this will depend on their experience and approach to M&A projects appropriate for your scale of business, together with specific aspects of your product, market and geography;
The time of year that you launch a process. The holiday periods can cause reduced availability of senior decision makers for management meetings and discussions;
Whether there is an international dimension to the process. The time taken to negotiate with parties in different cultures and time zones can cause delay (though to offset this, it is also possible that such an ultimate purchaser is willing to pay the highest price).
Whether the process desired by the shareholders is that of a rifle shot approach (seeking one-to-one negotiations) or involves an auction (whether broad or narrow).
We seek to work with the business owners and management team to understand their particular needs and preference. This will enable us to design a process that fits into a timetable that suits your particular circumstances. The team at LockDutton would be delighted to explain what is achievable in your situation.
IS MY BUSINESS SALEABLE?
Prospective acquirer or investor interest in your business is driven by a range of factors which will also have a bearing on the price they are willing to pay.
Financial buyers will look at
the management team and whether it has depth or lacks key skills;
the technology, product or service;
the market opportunity;
the projected financials of the business and a deal that enables them to generate a return, typically in 3-5 years.
Trade buyers may seek to acquire your business for market entry, to acquire a product, technology, IP or assets, to gain market share or as a means to acquire the team. Alternatively, it can be to protect their supply chain, for economies of scale or scope. Some of the above may generate synergies, and so any gaps or weaknesses in your business may not be a concern to a trade buyer.
Does your business have a sustainable and growing revenues, profit and cash flow? Whilst growing cash flows will help secure a higher price, it remains possible to sell a business that has flat or declining revenues, especially if there are synergies available to the buyer.
No matter what the status of your business, it is important that you talk to an experienced corporate finance adviser, like LockDutton Corporate Finance, who can review your business and help you craft an equity story for the right set of investors or trade players.
CAN YOU SELL A MINORITY STAKE?
LockDutton Corporate Finance has helped business owners and management teams with the sale of minority stakes.
A partial sale - involving the sale of a minority stake - can be undertaken to enable either or both
an infusion of cash into the business (for growth or working capital), and/or
an existing shareholder to realise value from their stake by selling some of his or her shares.
The process requires an investment typically from a private equity firm, a venture capital trust (for new money) or a family office.
This type of investor will undertake significant due diligence to understand the business and the rational for the sale of the shares.
Such a sale can not only help a shareholder realise a significant proportion of the
value in cash but also allow them to participate in future growth in value with the remaining stake.
Bringing in a professional investor can help propel the business to the next stage in its development.
It may also open up the possibility of bringing in new management if the business owner wishes to step back to take a non-exec role, or enable succession and a full exit at a later stage .
LockDutton Corporate Finance has a network of financial investors suited for a minority sale, and are familiar with the right process that creates the right outcome for business owners and management.
WHAT IS AN MBO, MBI OR BIMBO
A management buy-out (MBO), management buy-in (MBI), and a Buy-in Management Buy-Out (BIMBO) relate to a financial investor backing
the existing team (MBO)
a new team brought in to run the business (MBI)
or the combination of the two) where selected new new management can complement the existing team (BIMBO)
to acquire the assets and operations of a business from the existing owner. All of the above transactions are options available to business owners seeking to exit their investment.
The business owner could be a family, a single private investor or a strategic or trade player seeking to exit from this activity. Where the vendor initiates the transaction, this is known as a VIMBO (a Vendor-Instigated MBO).
The existing management team will be asked to roll-over much of their current stake (if they have any) in the business into the newco that acquires the business so that they are fully aligned with the financial acquiror (typically a private equity or family office).
The transaction may enable some shares owned by the management to be cashed out to recognise their role in the value created to that point. In backing the management team, the financial investor will also provide sweet equity to the management in the form of additional shares that vest under certain conditions.
Such transactions are often funded by debt and equity, and will require a clear vision and business plan to drive the business for the following 3-5 years.
The significant due diligence commissioned by the financial investor looks at all aspects of the business (financial, legal, environmental, management, commercial). It is used to confirm that the business, the plan and the management team they are backing will delivery a successful exit in 3-5 years and can support the debt taken on in the interim period.
LockDutton are experienced in advising business owners and management teams regarding MBOs, MBIs, BIMBOs and VIMBOs.
HOW DO YOU KEEP A BUSINESS SALE SECRET?
All aspects of your business are treated in the strictest confidence by the LockDutton Corporate Finance team. We minimise the risk of a leak by
controlling the information flow (both timing and amount);
ensuring it is undertaken with parties that have executed a non-disclosure agreement (NDA),
choosing a process that can control the number of parties approached (ie whether a rifle-shot with with one party, or a broad or narrow auction).
In undertaking a corporate finance transaction with you, we will work with you to determine what material is required to be sent to prospective investors or acquirers and when it is sent. We will initially craft a profile that does not identify the company, but does provide sufficient information (a teaser) for prospective purchasers or investors to decide whether to proceed to the next stage.
At this point, the parties are then required to sign a non-disclosure agreement which enables them to receive the Information Memorandum (IM).
Whilst the IM is a comprehensive document that describes all aspects of your business, we may still determine, with your input, that certain selective sensitive material is not disclosed in the IM and is held back for a later stage in the process. Some selected competitors may also receive a customised IM removing particularly sensitive commercial matters.
The type of process followed may also limit the overall number of parties we seek to approach. The team at LockDutton would design your preferred process (a rifleshot approach with one prospective investor or buyer, or a broad or narrow auction) to best meet your needs.
WHY USE LOCK DUTTON?
LockDutton Corporate Finance was formed by Andrew Lock and Craig Hewitt-Dutton in 2014. They shared the vision of creating a director-led corporate finance firm dedicated to SMEs whose business owners or management teams are contemplating critically important projects (such as the sale of their business or raising funding for the next stage of its development) that deserve senior-level attention at all times.
Client benefits of working with a director-led independent corporate finance firm:
no conflicts of interest;
the active involvement of all directors in every transaction;
every client taken on matters to the partners;
the Directors project manage all aspects of the transaction to completion;
experienced people available at all times who bring the right skills and knowledge;
an extensive network of quality contacts
a track record of delivering successful outcomes, supported by exceptional client references;
deal experience across a range of industry sectors (manufacturing, telecom, media and technology, services).
HOW DO I GET STARTED
Please contact one of the directors to discuss your business and plans for it; we can quickly establish how the firm can assist. This will typically entail an initial call followed by a site visit to the business to meet the team.
Following our client take-on rules, which adopt standard anti-money laundering rules, a formal engagement is issued and signed by the shareholders and/or directors. This engagement letter will describe the services requested and to be provided and fees and expenses involved.
Having discussed with you your own objectives, we will seek to craft a process that meets your particular requirements. A typical process will involve your significant input at the start, when we issue an information request.
This will help draft the documentation that has been agreed to be produced for the project. The typical documentation that the firm will produce may include the teaser, the information memorandum and management presentation. These are issued to an agreed list of prospective purchasers or investors at various stages in the process.
The information request will also inform the firm's research into prospective purchasers or investors; complementing your own views including the disclosure of any approaches previously made to the business.
The initial information request may also flag possible transaction issues that may then require addressing. This could even require input from tax, environmental, legal, regulatory or other professional advisers. If you do not have retained specialist advisers, then the team is able to introduce you to a range of independent professional advisers who can assist at every stage in the process.
WHAT ROLE DOES LOCKDUTTON PLAY?
LockDutton Corporate Finance is an independent firm that provides advice to shareholders seeking to sell their businesses and prides itself on its director-led approach.
The firm works across several industry sectors and has a strong track record in delivering successful exits to business owners utilising an extensive network.
As an independent firm, the directors will always take the long view and provide impartial advice to shareholders and management teams.
LockDutton Corporate Finance typically:
advise on preparations ahead of any launch;
- provide guidance regarding an indicative valuation and the timing of the project;
help devise the equity story through the careful preparation of an Information Memorandum;
research numerous prospective buyers across relevant buyer groups;
help to qualify the potential buyers through initial discussions;
lead the negotiations with all parties;
comment on the structure and content of any offers;
deliver unwavering support managing and liaising with professionals during in-depth financial, commercial and legal due diligence exercise; and
unlock critical issues that emerge throughout the entire process to get the deal done.
Please get in touch with one of the directors who will be pleased to learn about your particular shareholder goals and discuss how we can assist.