Talking points

Selling a business - insights from our entrepreneur network

Experts shared their thoughts about selling a business at an event hosted by the Cazenove Capital Entrepreneur Group

25/01/2018

Entrepreneurs face many challenges when growing their businesses but one of the toughest comes when it’s time to sell up and exit the company.

At a recent event hosted by Cazenove Capital’s Entrepreneur Group, Nick Jordan, partner at private equity firm HgCapital, and Riccardo Abbate, partner at international law firm Trowers and Hamlins, shared their thoughts on the key to achieving a successful exit.

Realistic expectations

Nick, whose company invests in founder-owned businesses, explained: “We’re at that point in the business cycle where the expectations of buyers and sellers are beginning to diverge because valuations are very high, but people are nervous about lots of things that might be happening in the UK over the next two years.

“If you begin discussions with investors you have to quickly work out if you have the right expectations. We are at that point in the cycle where fewer deals get done and more things fall over and if you expect perfection then you’ll never get anything done.”

But deals are completed throughout the business cycle for companies with strong growth prospects. “Would you have invested in Facebook in 2006? Of course you would,” he said. “The point is there are lots and lots of businesses that will perform incredibly strongly through a downturn. I think the question is ‘can you articulate to investors why your business is sustainable and why they shouldn’t be worried?’”

Understanding yourself and your business - due diligence

Riccardo gave his thoughts on how entrepreneurs should go about demonstrating the underlying strength of their businesses to investors.

As a first step, the owners ought to be clear in understanding why they want to sell. For example, have they grown apart in their commitment to the business they founded or in their plans for its future development? Exploring and understanding that will help them identify the 'deal terms' on which they ought to seek to sell their business.

Commissioning an 'outside' view of the business can be very helpful. Riccardo recently helped to sell a business after he advised the owners to commission some independent due diligence, even though they knew their company well. The resulting reports proved an invaluable tool to help articulate the robustness, value and growth potential of the business, which informed the subsequent auction process and successful sale (to private equity).

He said: “In years gone by the stereotypical view of selling to private equity was that the owners were likely to enter into a 'win/lose' style of negotiation where deal points were traded on that basis. However, I have seen a change in that attitude. There’s a better understanding that negotiation ought to be driven by aligned principles of mutual interest, particularly where the sellers will have a stake in the acquiring vehicle and will have a material role in the growth of the business after the sale to private equity.

“There’s a very fundamental business driver for that change in attitude, because if you are working collaboratively and you’ve got a common aim, then the chances are that the venture will be more successful.”

Cazenove Capital has looked after entrepreneurs for many generations. From the initial planning of a business right through to exit, we have been able to support our clients through this process. Whilst we are neither lawyers nor corporate finance professionals, we do believe we can help our entrepreneur clients by introducing them to the right people at the right stage in the evolution of the business.

We regularly meet new and existing intermediary contacts with great expertise in different fields and would be happy to make the necessary introductions. We also have the knowledge/expertise to help entrepreneurs manage their wealth. If you are thinking of setting up or are now running a business and would appreciate some input from experienced professionals, we would be delighted to discus some of the issues you are facing. The Cazenove Capital Entrepreneur Group holds a series of events throughout the year where entrepreneurs and professionals share insights and forge connections. You can find out more by emailing robert.snuggs@cazenovecapital.com or nicholas.sanderson@cazenovecapital.com

Author

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