How To... sell your business

How To... sell your business

Deciding to sell the company you have built from the ground up can be a tough call to make. Whether you are selling to retire or to realise the value of the business, the process is fraught with many uncertainties and hard decisions. While selling out is a common strategy, you also need to consider other options such as inviting investors on board or divesting out of a non-core business unit. Reseller News polls some in the industry on how to sell your business.

Apple reseller Magnum Mac was sold to distributor Renaissance last year. According to general manager Murray Wood the sale made sense for both parties, as the distributor could shore up its Apple business even as the vendor established a greater local presence, while Magnum Mac could launch into expansion.

“I knew the retail side of the Apple product had to grow. Magnum Mac had to establish another three or four branches and I didn’t want to do that on my own,” says Wood.

“It’s very hard being a one-man-band and I wasn’t at the stage of my life where I wanted to re-invest in the business.”

Wood says he didn’t prepare his business to be sold, with the Renaissance deal “almost coming out of the blue”. However, he says the time to sell was right after 18 years of running the business.

“[The timing of a sale] is always a judgment call. For us the timing was perfect, but you can always look back and say you sold too cheap.”

Wood likens the timing risk to a house sale, where a sale can fall through if a seller holds out for an extra few thousand dollars. He recommends companies be realistic about their sale price and know the amount of money they want.

The sale of Magnum Mac has set Wood for life, while also giving Renaissance a good deal, he says. He continues to head the business, reporting to Renaissance managing director Paul Johnston, and is a shareholder in Renaissance.

Meanwhile, good working relations with the acquirer bodes well for a successful deal, says Bryan Morton, head of Computer Plus Otago, the Gen-i franchise recently sold to the integrator.

“I was looking at a company I knew incredibly well. I know the staff there and I know our staff will be looked after.”

Morton believes it’s also key to know how the merged organisation will look.

“It’s really important to know all the drivers and what will happen to the business when it goes through the process, and what the game plan is for the future.”

Companies that are competitive and well managed will be attractive targets for buyers, along with those that are successful in a particular area of business, says Morton.

“What companies are looking at are the market niches you do really well in and the synergies, and how they fit in.”

Selling a business lock, stock and barrel is not always the only way to unleash some of the value wrapped up in it.

Sometimes just a division of the organisation can be sold. IBM did this globally in 2005 when selling its PC division to Lenovo and locally last November when it spun off its cabling business to newly-founded Commit Services.

When done right, carving off a non-core piece of your business does not have to equate to severing a limb or giving up a child, says Bennett Medary, CEO of Simpl Group, which sold its infrastructure business to networking and security specialists Securecom in 2006.

Since this division was not core to Simpl’s strategy, selling it was a simple decision to make and to communicate to staff, says Medary.

“Because it was backed by clear strategy, it was pretty easy to communicate. We were able to divest out of that part of the business and the capital we gained could be used as investment capital for our core strategy.”

But Medary says it takes vision and courage to be able to sell a portion of a business. “Most businesses are shackled by their legacy and their past – it is very hard to drive to a new vision. It takes courage to risk what you currently have in order to get to a better place.”

He adds many companies end up with diverse business units as they evolve to meet their customers’ needs. “New Zealand is a reasonably small and shallow market. We tend to revolve our business around our customers and they ask us to do more diverse things. The next thing you know you are in a business, but you did not get there strategically but by happenstance.”

It is essential for a company to have a clear vision of its core strategy and of the proposition it is taking to market, says Medary.

“You need to decide what you want to own, partner or not be involved with period.”

One potential issue of selling a portion of a business that can be overlooked, is how those employees who are not being transferred are affected. “The impact on those not being sold off is often as high, if not higher, than the people who are being sold.”

Employees who are moving have to come to grips with their new situation and tend to move on faster than those staying behind, who are ‘grieving’ the loss of their colleagues, says Medary. “The people who are grieving have no outlet – they don’t have anything to move on with, they just feel a loss.”

But selling is not necessarily the only way forward for business-owners looking to eventually exit. For many grooming a successor is a far more appealing option.

Despite receiving around 11 unsolicited enquires to buy his business over the years, Allan MacLean has no intention of selling Maclean Computing.

Instead, his son Chris MacLean, the company’s sales and marketing director, is interested in eventually succeeding him.

However Allan MacLean advises that succession may not always be the right option.

“It depends on the wishes of the individual. The assumption that a family member will take over the business is very dangerous because each person has individual motivations. In other companies, I know the children are simply not interested in joining the business possibly because they’ve seen their parents working in it.”

His advice to people looking to sell their company is to make sure the business is economically sound.

“Buyers will be looking for a reasonably clean balance sheet – that means things like overheads are not out of control and above all steadily increasing earnings. Buyers are basically looking for confidence that the business will continue.”

Ensuring that the business operations are not dependent on an individual is also important, says MacLean.

“You’ve got to have capable people to run the sales, HR or engineering division. Basically you have to ask yourself – if you take a long break will people notice?”

MacLean says there are a number of advantages to selling or merging.

“When a company is merged with another there are a lot of overheads that disappear, such as the second company’s rent. The merger might cause an overlap of office staff so those fixed costs can be reduced. It’s also important to sell to a company that has a similar work ethic and culture so there are no debates or disagreements.”

Selling to another company that can build up the bottom line can be beneficial as well. “If you have a successful sales organisation, then removing those fixed costs can make for a very successful merger. If you’re buying into another business, then make sure there is some synergy.”

MacLean also points out that a merger can make a company more powerful.

“Sometimes a merger will enable cost savings through better buying rates. You have different discount levels depending on volume with some organisations, which can help earnings. The company could go from a C-grade customer to an A grade with a supplier.”

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