Q: Should I use a Business Broker to sell my company?
A: According to AccountingWeb.co.uk the big UK business brokers manage to sell less than 10% of the business on their books. Smaller business brokers sell less.
The main revenue stream of the business brokers is the fee the business owners pay in order their business to be listed. The business brokers have less interest in selling the business as it is a time consuming and hard work.
Another issue with the business brokers is that initially their sales person (the front-office) promises you that they can sell your business at a high multiple of EBITDA, so you sign the exclusive contract with them and pay the fee. However, the back-office then struggles to sell the business at this high price and comes back to you to reduce the price down.
Another downside of using a business broker is that when a potential buyer makes an offer to the broker, they pass it on to the seller and if they reject it, the buyer is informed about the rejection. Usually, the broker does not allow the seller and the buyer to have a direct discussion and find out how far or close are their expectations about price and terms. The buyer moves on and the business stays unsold.
As a contrast to the business brokers, my team and I focus on your needs and expectations. We listen carefully what you want to achieve with your exit, valuation, time frame and conditions, and prepare custom-made solutions for you. Our aim is to achieve a Win-Win-Win situation for you – the seller, for us – the buyer, and for the business.
Q: Should I sell my business to a Trade Buyer?
A: A Trade Buyer (a larger business in your industry) will be mostly interested in getting your clients and contracts and absorbing them into their existing structure. Most likely some of your existing staff, who helped you to build the business over the years, will be made redundant. Your company legacy will be lost as the larger business will introduce their company culture, brand name and processes.
Q: Should I sell my business to a Private Equity company?
A: A Private Equity company may acquire a business if it is of a certain size, in average above £8m EBITDA. They also have a strict set of rules, like all the management staff to stay in place, to have standardised processes, controls and systems, etc.
Q: What is the professional background of Mark Johnson?
A: I am a private investor and a partner at OPC Capital Partners, a global M&A firm with a strong track record of over 100 acquisitions across 32 industries in 12 countries.
With over 20 years’ experience in business analysis and business consulting, I have improved businesses in a wide variety of UK industries – manufacturing, IT, telecoms, finance, insurance and automotive, to name but a few.
Some of my most popular clients were BT, Vodafone, Verizon Telecom, NOKIA, Coutts Bank, Bupa, AXA, BMW, Honda, British Car Auctions, Specsavers, Amdocs…
The business improvements which I made for a particular UK company, resulted in winning a $5,000,000 contract with Volkswagen Group of America.
I have also been providing M&A consultancy services for Virgin Media, O2, HPE, Reed Exhibitions, and many others.
I have personally bought, improved, scaled up and sold companies.
Q: Why are you interested in buying my company?
A: My team and I are currently acquiring profitable companies in the metal manufacturing and engineering industries as we are building a group. Our group is a platform where we provide additional resources (management, finance, HR, marketing, etc.), which helps the individual business to keep their existing legacy, retain all the staff, improve and grow.
Q: How will you finance the purchase of my business?
A: We invest own funds and arrange commercial lending. The deal structure is tailored to suit your needs and usually will include an initial consideration and a deferred consideration over an agreed period of time, and will consider the tax efficiency for you.
Q: How long does it take to complete an acquisition?
A: Every deal is different, however, an average acquisition can complete in a period of 12 weeks. Usually, the delay is caused by the seller, when the requested by us information is not provided on time. We have in place a very experienced acquisition team and a completion within 12 weeks is easily achievable.
Q: What happens with the business once it is sold?
A: We are buying businesses and building a group. We are not asset stripping businesses. When we buy a business, we keep its name, structure, employees, etc. Our policy is to keep the legacy of the business we acquire and grow it further.
After the acquisition, the management team of OPC Capital Partners and I will work closely with the management team of the business, and together we will create a strategic plan, which will include the various departments, e.g. Accounting, Finance, Marketing, Sales, HR, Operations, Technology, Production, R&D… If necessary, we will provide funding for new plant and machinery, marketing, recruitment of additional staff, etc., in order to accelerate the business growth and expand into new markets.
Q: Do you use EBITDA to value a company?
A: We can use EBITDA to value a company, however, we prefer to use the Adjusted Net Profit. One of the reasons is that the UK Chartered Institute of Management Accountants (CIMA), on the link below advises not to use EBITDA:
UK CIMA: “Top Reasons Why EBITDA is a Great Big Lie:” “Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a kind of fake story that was told to investors and credit managers about company performance and indicators of value. Know the reasons why relying on EBITDA means buying into a great big lie.”
https://www.linkedin.com/posts/cima-institute_cashflow-ebitda-duediligence-activity-7059488736065036288–kw7/
Q: How do you value a company?
A: Valuation of a business is quite subjective. Our valuation is based on the value of the net assets of the business, a multiple of the Adjusted Net Profit or EBITDA, the business potential revenue, market trends, etc. In order to value your business, we need to understand it first and because of that we do a detailed due diligence and use our acquisition expertise.
If you already have a valuation of your business by a business broker, we will not use that valuation but do our own due diligence. We know for what multiples businesses are selling in certain industries and we will provide a realistic valuation. Our goal is a win-win situation in which you are happy with the valuation/sale price and we are happy with a realistic time-frame for the return of the investment.
Q: Do you buy non-profitable businesses?
A: At the moment we are looking to acquire profitable businesses only.
Q: Do you invest in other people’s businesses?
A: Currently we are looking only for acquisitions, in which we buy 100% of the shares of the company and have a full control of that company. However, in particular cases, we can acquire part of the company only and the seller will keep some of the shares, if this is what they prefer. We are quite flexible in our approach.
Q: What happens with the cash in the business I am selling?
A: It depends on the particular situation and an accountant can advise. Here is an example for illustration purposes only. If you have £1,000,000 cash in the bank and want to take it out before the sale of the business, or during the acquisition, you have 3 options (figures correct at the time of writing):
Option 1: You withdraw the money as a salary and pay 45% taxes = £458,213.60.
Option 2: You withdraw the money as a dividend and pay 38% taxes = £377,023.41.
Option 3: Here comes in play our acquisition expertise and we can suggest different scenarios. One is to take the money as a part of the deal (e.g. the initial consideration) and using the Entrepreneur’s Relief (now called Business Asset Disposal Relief), you pay only 14% tax = £140,000.
Selling your business on a cash-free, debt-free basis can cost you more in taxes. Contact me for a confidential consultation on the best exit options for you.