As an owner of a consulting firm, at some point you are likely to be approached by a potential acquirer. How you respond to that enquiry will significantly affect how the acquirer sees your business and the value that you could realise if you decide to progress to a sale.
In another successful webinar presented by Bruce Ramsay, Managing Partner of Consulting M&A for The Growth Consultancy Network, Bruce gave practical advice to owners of consulting firms on what to do when a buyer gets in touch. Here is what Bruce said:
Control the flow of data
A common mistake made by owners is to send over raw data requested by a buyer. This can lead to the exposure of things that could affect negotiations.
You only get one chance to make a good first impression, so it’s important that you make sure you are in control of your company data and the sharing of that data. That way you can present your business in the best possible light and manage more effectively sub-optimal messages.
Know your business value
It can be overwhelming, exciting and nerve racking when you are approached by someone interested in acquiring your business, especially if they are a prolific acquirer. This can lead to owners letting the buyer take control and setting the pace and price.
It is important to remember that you know your business better than anyone. Understand how your business benefits the acquirer and therefore the value that you bring to their business. Identify what your business is worth to the buyer and demonstrate how it will support their growth ambitions.
It’s important to work with the buyer to understand your business worth. Don’t just leave them to quantify the value themselves.
Understand the deal process
During a sale process, owners don’t know what they don’t know until it’s too late. So it’s important that you prepare yourself for the eventuality of an approach by building an understanding of deal structures. Below are just some of the areas you will need to address during deal structure discussions.
- Cash/and or share – vesting, put/call options
- Earn out – metric, included/excluded, cross-charging, target and start point, seller control
- Cash and debt adjustments
- Employment agreements
- Non-compete clauses
- Tax liabilities (and credits)
- Current and projected performance
Knowing what should be happening at what stage in the deal is also important. For instance, during due diligence you should no longer be discussing commercial terms. Due diligence should essentially be a process confirming that you are what you said you are.
So make sure that an outline view of the structure ideas which have been agreed is set down in a Letter of Intent or email communication similar prior to diving into due diligence.
Get professional advice
A sale process is a time consuming and challenging experience which can take your attention away from the day to day running of your business. This can have serious implications, both short and long term, whether you complete a sale or decide not to proceed. Don’t leave success to chance. Put yourself in the best position possible by getting professional advice from an M&A expert.
If you have been approached and would like professional advice and guidance or if you would like to understand the value of your business in preparation for a future sale, contact Bruce on +44 (0) 7860 442 715 or email firstname.lastname@example.org
You may also be interested in reading our blog on ‘Who will buy your consulting firm?’