Kingsworth Associates

There are, of course, myriad issues and questions which arise when family shareholders are contemplating such a major event as selling the company. Experience has shown that some of the questions most commonly put to us on company disposals over the years by potential clients, especially early on, include:

i) Q: What do I need to do to prepare my company for sale?

  1. A: Before taking the decision to sell a company, it is instructive to analyse factors which may deter or present problems for a potential purchaser, effectively undertaking what is referred to as vendor due diligence. Issues which commonly fall for consideration include:

  2. Management structure: the nature and quality of second tier management, and whether – if the shareholders wish to exit at completion – the purchaser could continue to run the company with the existing management team.

  3. Accounts: whether the accounting policies are in line with generally accepted practice; whether there any excessive provisions which could be released; and whether there are any excessive costs which a purchaser would not wish or need to carry going forward.

  4. Restrictive articles of association: whether there are restrictions/rights of pre-emption between shareholders and/or different classes of shares governing the sale of the company.

  5. Patent/IPs, etc: whether a company has taken, or needs to take, any steps to protect brand names, patents or processes, and IP, an area often overlooked.

  6. Existing contracts: whether there would be any problems in relation to contracts with third parties in the event of a change of ownership of the company's shares.

ii) Q: How long will it take to sell my company?

  1. A: The time taken to sell varies hugely, as it is dependent upon so many factors and extraneous events which impact directly or indirectly upon the sale process. However, a reasonably indicative timetable following the drafting of an Information Memorandum and the undertaking of a focused marketing exercise could look as follows:

  • Weeks 1-6: period during which indicative offers may be received
  • Weeks 7-10: assessment of competing offers and selection of a preferred purchaser
  • Weeks 11-18: signing of a heads of agreement with the preferred purchaser, followed by them undertaking financial and legal due diligence
  • Weeks 19-26: both parties' lawyers and advisers negotiating the legal and commercial terms of the sale and purchase agreement and related documentation
  • Week 26: completion (and a large cheque, hopefully!).

iii) Q: How much is my company worth?

  • A: It is axiomatic but entirely true to say that every company is worth what someone will pay for it, and that will be different amounts to different purchasers. Thus, notwithstanding any initial theoretical thoughts, clearly the real test as to the valuation range which purchasers may be prepared to pay will only become apparent once a marketing exercise has been undertaken and initial indicative offers have been received.

  • In the vast majority of private company valuations, a valuation range will be arrived at by purchasers applying a multiple to a company’s adjusted maintainable earnings.

iv) Q: How can you guarantee that the sale process will remain confidential from my staff
and competitors?

  1. A: There can in truth be no absolute guarantee about this but the risk can be minimised as much as possible by adhering to well established procedures and rigorous control of the deal process. Every potential purchaser will, of course, have to sign a confidentiality agreement and, at a later stage, Kingsworth will advise the shareholders at what stage they can and should release differing levels of information to management and staff.