The mergers & acquisitions market recently hit its highest value on record. Equitix, a leading global investor, reported transaction volumes up 20% on pre-pandemic levels. So, with the market as buoyant as it is, it is a good time to consider selling your business. And even if you’re not thinking about sale, it is best practice, for your growth and future opportunities, to have a business attractive to investors.
In this article, we’ll tell you what investors are looking for, how to maximise the value of your business and what you should be doing to prepare for market readiness. And if you would like further information, please read our new Business Exit Planning Guide or listen to Episode 5 of TLD Talks where our CEO Ed Simpson talks to experienced M&A lawyer, Anne Whalley, and investor and Director of Garwood Solutions, Robert Garner.
What Investors Want
Investors want a return on their investment, so they are going to be looking closely at a business’s historic performance and its future potential for growth and profitability. They typically use the EBITDA metric to value a company together with the company’s EBITDA growth percentage to evaluate its operating performance.
More broadly, they also look at the characteristics of an organisation – they are interested to see how well structured it is and how well it maintains its documentation. Tangible signs of competence and clarity in these areas usually engender investor confidence.
Increasingly, investors are also looking at how organisations use technology to improve the client/ customer experience and the Environmental Social & Corporate Governance agenda is gathering momentum, so it’s worth looking at how well your business measures up against these criteria.
Getting Your House in Order
It is not always easy to assess your own business dispassionately, so it may help to approach it with the mindset of a buyer.
Market Readiness Assessment
Conducting a market readiness assessment and performing your own due diligence will highlight any deficiencies and give you the opportunity to address them before taking your business to market. Though you can tackle these issues later in the sale process, it may chip at buyer confidence, slow the process down and negatively impact your value. It can also be expensive if lawyers on both sides are asking you for documentation that you could and should already have in place.
Management Information
Collating and organising your Management Information is a good place to start your own due diligence. This is data relating to your business activities, including financial information and details of contracts with your customers and staff. Potential investors will be looking to see that you have clean accounts and a history of achieving budget. More detailed information about what you should be preparing in your MI can be found in our guide.
Get the Right Advisors
At this stage, it is important to have the right advisors on board and we would recommend bringing in short term support if you don’t already have it in-house. Initial financial due diligence is very time consuming and distracting for management so engaging an interim CFO, if needed, would save time and is likely to improve your investability. Likewise, a lawyer with good M&A and in-house experience will know what another party’s legal team will be looking for and can check that there are no potential issues with compliance or in your contracts that are likely to deter buyers. They can also lend much needed expertise during the negotiation stage.
Data Rooms
As part of your due diligence process, you need to look at how you are structuring your data and how you share the necessary information with interested parties.
Data rooms control how data is stored and disseminated. Documentation will be added to your data room throughout the sale, and it is worth spending some time investigating your requirements carefully. There are considerable variations in their price and levels of sophistication, so get advice if you are unsure what is most suitable for your needs.
How Can TLD Help?
TLD lawyers have supported business owners through this process many times, have responded to a wide variety of issues and have a learnt a lot about what investors are looking for. They work within your company and know your business and your aspirations so will be a supportive advisor on your team.
Practically, they will help you structure your data logically and clearly, check your MI and update your company books if needed.
They will look at your key contracts – both with third parties and with employees or contractors to check that there is nothing that would impact the value of the company, such as ‘change of control’ clauses. They will see if any contracts need extending and check that they are signed. And they will examine your Shareholder Agreement and pension scheme to check that they are set up correctly ensuring that you can complete the investment in your company as smoothly and efficiently as possible.
This will show your business in the best possible light to investors, to give you the most investment opportunities. And when you’re ready to go to market, our lawyers can help you with the next stages – right through to sale. You can find more information about this in the Business Exit Planning Guide.
If you have any questions, or would like our advice on this topic, please contact us on 020 3052 8613 or info@thelegaldirector.co.uk.
