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Grow or go?

Many entrepreneurs that were contemplating a sale or retirement in the next few years have had their plans thrown to the wind by the experiences of the last twelve months.

John Willcox-Jones, from our European operation, provided his own insight into this issue, which is also relevant to our Australian clients…

At first sight it is difficult to see how currently a sensible valuation for a sale can be obtained when a good result for 2020 may well be considered either breakeven or an ‘acceptable’ level of loss.

However, while no one will pay a good price to take over a business that is going nowhere, if there is a clear recovery / growth plan then proper strategic acquirers are structuring transactions so that in addition to sensible payments on completion further payments are made when real value returns.

It makes good sense to view your company as if you are an ongoing long-term owner even though you may in fact be seeking a shorter-term exit.

In many exit situations the best “deal” for existing owner-managers will now involve them staying on for at least two or three years.

2020 Q4 deal structures are being laid out including assumptions as to recovery in 2021 and 2022 and real growth from 2023 onwards.  Mutually beneficial deferred payment structures are then being agreed.

As, in any event, current performance is likely to require medium term personal commitment – this is not an onerous requirement.  In addition, the greater ability to scale up to take advantage of commercial opportunities post pandemic with a well-managed and funded owner should result in the business growing considerably quicker through a combination of organic development and acquisition.  Thus, it is realistic to aim to achieve larger deferred payments and overall deal value than would have been achieved if the owner had ‘waited for his performance to improve’ before selling.

Apart from those on power based ego-trips (whose numbers are thankfully declining), most entrepreneurs are as happy with a smaller share of a larger cake as the opposite – it being the pounds value of their share that counts.

Finally, as an entrepreneur remember that particularly in the New Economy opportunities come more than ever from seeing what everyone has seen but thinking what nobody has thought!

An acquirer often brings additional proven management with them that is offered to the business – often more reliably than recruiting in the marketplace.

In either case, this may enable the owner to reduce the time that they are required to remain with the business after sale – an attractive situation for most entrepreneurs who do not relish the prospect of the employee status!

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