Round table report: ‘It’s about belief, trust and sentiment’

Finding a buyer might not be the hardest part of the deal; it could be finding the RIGHT buyer who will continue the good work you’ve put in over so many years – and who will treat the staff you leave behind as well as you want them to.

Carl Roberts, Managing Director of CR Civil Engineering, found the right fit when he sold the business to environmental, engineering and technical services provider RSK Group Limited.

Carl said he hadn’t thought too much about selling, but the opportunity and circumstances were right for him to sell.

He said: “The past 18 years have been a massive commitment. When the business started, it was me, three men and a white van, and now we employ 230 staff”.

Working with David Crump, Corporate Finance Director at PKF Smith Cooper, Carl made the decision to seek a buyer for CRC. PKF undertook extensive research to identify potential acquirers and it became apparent RSK was the most suitable buyer from a cultural fit perspective.

He said: “CRC’s and RSK’s company cultures are very aligned and being part of RSK offered further opportunities for the business to develop and allow CRC’s dedicated staff to reach their full potential within a growing organisation”.

“PKF Smith Cooper did a fantastic job in steering me through the sale process.

“One of the things that swayed my decision was that RSK wanted us to promote from within the business. That was important.

“The only thing I’ll take credit for is surrounding myself with good people, and adapting to those people; I’ve made sure they’re looked after when I eventually step away”.

With any deal, it is clear that there is no one-size-fits-all method, but there are key considerations to make when looking for a buyer.

Joel Nixon, partner at Flint Bishop said: “There’s not a one-size-fits-all, it’s about what your future plans are as it may be inevitable that you’re going to have to stick around for a short period if you and your relationships are inseparable from the business and it’s been built with your knowledge.

“It’s all about what life after an exit looks like for you. And what are you willing to do in terms of scope and duration of a handover, if any”.

For Darren Hodson, corporate finance partner at PKF Smith Cooper, setting your succession plan is a vital component in exiting a company.

He said: “The single biggest area that blocks an exit is not having a succession plan. There are lots of different reasons why you don’t put succession in place but you need to think about how you’re going to do it”.

David Crump, corporate finance director at PKF Smith Cooper, added that there are a lot of things to consider when targeting the right buyer.

He said: “A competitive business might be a natural fit and have a synergistic benefit, and whilst there is a risk in releasing sensitive information to competitors, these parties may, in some cases, be able to offer the highest price.”

When working with Carl, David said it was important to him, “that the business went to a buyer with a similar culture and attitude towards its employees. We talked to a number of parties, but RSK was the one that fitted best”.

The sale process ran smoothly as David was able to understand exactly what Carl wanted. He emphasised how important it is for sellers to communicate their objectives: “Setting your personal objectives, sharing them with your adviser and shaping the buyer population with your objectives is key”.

When looking at potential buyers, David said one of the roles of an adviser is to assess the likelihood of whether they can complete the transaction.

He said: “It’s all very well having a high offer, but can they deliver on it? Deliverability is key to us. We look at deals the potential buyer has completed previously, we look at the funding capabilities, and who their funding partner is. We’ll also ask for proof of funding”.

Darren Hodson revealed that selecting a buyer, “is a real art form”. He said: “You can receive offers, but you tend to receive them cold, and you’re probably narrowing them down on a cold basis. You, the management team and the vendors, don’t really know those buyers until you sit down in front of them, eyeball them and have a chat. You’ve probably got three hours to make an assessment”.

Tom Horton, director of regional business development at Thincats felt that, “many people perceive that business owners are very selfish individuals. And actually, in my experience, that’s not the case.

“If you’re a selfish individual, you’d have sweated your people to work as you do – working 100 hours a week, but in reality, you’ve probably never asked them to work as hard as you worked as a business owner.

“If you’re perceived as selfish, the assumption is that you sell to the highest bidder, but no, in my experience business owners want everyone and every stakeholder to be happy. So sometimes you do need an advisor in the middle of it can be selfish on your behalf”.

For Carl Perry, investment director at FDC, the role of an advisor is also to help you navigate the difficulties and disappointments involved. He said: “For a lot of buyers and sellers, you will only do this once in your lifetime, but for us, we obviously see it day in and day out and maybe non-emotional too. As we’re third-party to it, however, it’s good because we can coach you through the challenges and explain that change is good and this is the result of the change”.

Joel Nixon added: “It’s always best if there’s a good clear open dialogue between buyer and seller, either directly or via advisors. It also helps to be able to have those frank discussions with someone who’s not going to run for the hills at the slightest difficulty.

“When the buyer-side ask for information, sellers can sometimes feel as though their homework is being marked and they are left wondering whether the buyer is trying to catch them out. The reality is that traps generally aren’t being set but it’s about making sure the deal is carried on in the right environment to understand the context of such information requests”.

The consensus around the table regarding the relationship between seller and advisor was summed up by Tom Horton who said: “It’s about belief, trust and sentiment.”

For Tom, there are steps the industry could take to improve relationships. He said, “Both from an advisory perspective and a funder perspective, we need to be a bit more empathetic to the management teams and be more transparent in what I’m asking for and why I’m asking for it”.

Richard Newman, senior director at Thincats stressed the importance of either having a finance director who has gone through the process before, or received advice on the next steps for your business.

He said: “The sweet process is driven from a debt perspective to a certain extent because we need to know your numbers, we need to know that the forecasts are right, the historics are in place and that your assumptions going forward are not crazily different.

“When we’re looking at from a credit perspective, yes, there are different angles that we need to go into, from management, to the business, to the market, but without either a quality, FD, who’s been through this process before, who will have all of the information to hand to prep the owner, vendor or MD – you do need that advice.

“The other part of it is that you’ve got to run your business at the same time. Because if that says if it falls off a cliff, then you erode your reading value for yourself. So the adviser selection and the way you work with your advisor is so so important as part of the whole deal process”.

Carl Perry of FDC agreed and drew on the experiences of businesses who sold before the pandemic.

He said: “From the seller’s point of view, you’ve just been through COVID and we all know that deals got done in quarter one of 2020. Then obviously, COVID hit, so then someone may have a business that would have been worth 20 million is dropped to 12. So then from bringing it back to the buyer, it’s going back to ensure that the buyer is capable of turning that business round or keeping getting that business back to where it was.

For many COVID was an opportunity however to show how your company could bounce back. Joel Nixon said “COVID showed how businesses can take a difficult opportunity, and prove resilience in meeting a series of challenges and come through the other side. It’s not always doom and gloom. Each difficult situation is a learning opportunity that you can implement going forwards and adapt the way you work from thereon, making your business a more attractive proposition as a consequence”.