May 25, 2022

As in real estate, to sell a business, show its potential!

The sale of a company is always motivated by the time that the purchaser gains in acquiring key elements (installed commercial base, possible savings on R&D, taxation, consolidated turnover, etc.). However, from year to year, the figures reveal a regular and continuous decline in the number of transfer operations and an increase in the age of transferors. The BPCE Observatory, one of the few to publish relatively comprehensive data on the subject, noted in 2019 that business transfers and transfers had fallen by a third in three years, going from more than 76,000 operations in 2013 to less 51,000 in 2016. And that more than one in five SME and ETI managers in 2016 were over 60 years old (compared to less than 15% in 2005).

To give in, show that we are serving a project

This relative scarcity of operations therefore leaves no room for the risk of an unplanned sale. It is essential to have in mind the parameters that will influence a potential buyer. First of all, the size of the operation plays a major role and must be taken into account in the preparation: is the buyer with whom the business manager is discussing an equivalent small cap logic? Are they looking to integrate new skills by optimizing their recruitment costs? Is he looking to acquire one of the components that his group lacks? Etc.

A successful sale also often involves the formalization of a joint memorandum in which are quantified the reciprocal leverage effects, performance indicators, the resulting business plan and subsequently the pay back of the sale (i.e. the difference between the cash flow generated discount and initial investment).

One point of attention, however: if the temptation is great to play on costs to increase profitability, it would nevertheless be a mistake to limit its structuring efforts to the sole objective of reducing costs. Indeed, the interest of a sale is not strictly linked to the profitability generated for the purchaser.

Daring “business staging”

Above all, the business manager must act like a property owner who is trying to sell his house: he must show what it will be possible to build with the property acquired. Helping the buyer to plan, giving him an overview of what he will be able to build with this asset, showing how the company will serve its plans for 2/3 years … are all arguments that help convince him , and to agree on a fair valuation.

This is where business staging comes in. It consists of preparing and formalizing the strategic components: the value proposition, the offer and its evolution, the “sales & marketing” approach, and the target organization designed to serve growth and promotion. It is indeed the most effective way of showing that the project is realistic, achievable and generates value – ie turnover and profitability.

The RH parameter

There remains one question that should not be underestimated: will the sold company be digestible in a new entity? And if so, how and under what conditions? For example, the involvement of the teams of the sold company, not only on the day of the sale but also and especially 12 to 24 months after, is decisive in the success of a sale project. This is what will generate the expected value.

Teams are indeed one of the most watched assets by a buyer. The latter is very interested in the skills he acquires through the operation and what they will bring to his business, how they will potentially contribute to his project. After having played a role in the success of the acquired company, the challenge is that they also contribute to the success of the entity they are joining.

Selling your business is a project that requires preparation so that the transferor comes out on top, that the operation creates value and that it gives birth to a new, promising, profitable and sustainable company. Finally, we must not forget that the choice of an intermediary to assist the operation is a critical point.