We buy companies!
We actively acquire SME businesses from business owners in all sectors. We like them to be in the UK, have potential for growth, at least 10 employees and a turnover of £1m+. And we like them to have been around for a while – so no start-ups. That is what we do in a nutshell.
We can and will use all the business jargon going when necessary, but the bottom line is we like to keep things simple and straightforward. Our ethos and values are based on a few simple beliefs: Be honest! Be authentic! Be human! Be ethical!
My favourite companies to acquire are those that have the founders still working in the business. We look at a lot of retirement sales and I really enjoy meeting the owners of those companies even if we don’t end up completing the acquisition They have built up amazing SME businesses in all sectors and they have in depth knowledge of both their own business and the industry they are in. They have watched their industries change and have adapted and grown but still retained that good old-fashioned knowledge that only comes from experience. They also have great stories.
BUT!
This is my least favourite bit. Only 20% of all businesses listed for sale ever sell and 50% of all transactions agreed, fall apart during the due diligence stage and never close.
WHY?
One of the main reasons businesses do not sell is because of unrealistic seller expectations. Anyone who has watched Dragon’s Den knows that business owners often estimate the business’s value way above the estimates of the ‘dragons’. Sometimes this is because a business owner is valuing the business based on revenue projections or prospects for orders, while the dragons usually base their value estimate on the cold hard cash the business is already generating.
Here is a quote written by a Business Broker for a LinkedIn article:
“Businesses that go straight to market sell for only 70-80% of the original asking price.
While you can get 95%+ of your asking price when selling your home, selling your business is a different matter. Canny business buyers will know that your business is likely to be overvalued.”
My issue is that if a business broker knows that the business is only going to be sold for 70% of the original asking price, why don’t they value the business correctly in the first place? A lot of them will give whatever valuation they feel will persuade you to sign up with them.
It is difficult for the business owners to have to come to terms with the real value of their business. They have been led to believe that it is worth so much more and, in their minds, they have already spent that money and are celebrating. It is so disheartening to see them realise that the value that is put on their business is not what they were led to believe.
I was given details for a business a couple of weeks ago that I was very interested in, but it was valued at 25x net profit. That is rich in 90% of sectors and very indigestible in the SME market. I would have made an offer too if the price wasn’t so outrageous, but I walked away because it was not worth half the sale price and the expectation of the owner would not have dropped down to its true value.
The average business owner has no access to any data or performance tables on brokers. As a result, the large majority of owners end up with the wrong broker. This has implications not just for the probability of finding a buyer but both for the sale price and the seller’s pocket. A few favourite broker tricks are:
Charge nothing upfront but tie into large fees to be paid even if the business is not sold. This means that there is no incentive to go out and market your business. They will get their fees whether the business gets sold or not.
Claim to have a large database of eager buyers or one buyer looking urgently for a business like yours.
Take a high retainer or upfront fee that once again means that there is no reason to go out and look for those buyers.
But it isn’t just the brokers that are at fault here. When you have spent years growing your company, sleepless nights, long days, missed family occasions and your youth, in some cases, the value to you may be very different from the value to someone who is not so emotionally involved. My broker friend above also wrote this:
“You need to make sure you get the right advice, but can you manage your own expectations and leave emotion at the door?”
I seem to have done a lot of business broker bashing, but I added the last point because nothing is more valuable to both the buyer and the owner of a business than a great business broker. Yes, they do exist.
How to tell if you have a good broker?
They spend considerable time with you analysing your business, working out strengths & weaknesses and getting under the skin of the business to learn how it ticks
They give you realistic valuations and explain the pros and cons of the different deal mechanisms such as seller financing, earn outs, and LBOs.
They draw up buyer profiles ... with your assistance. They're looking for characteristics the ideal / synergistic buyer will possess.
They know their buyers and understand which businesses would be attractive to them
They conduct extensive research and are proactive
They will work with both you and the buyer to make sure that the sale goes through in a way that is acceptable to both parties.
They will be happy to work through any issues that arise in due diligence and find solutions.
They will always return your call
So, if you are a broker with the above qualities, call me, message me or email me! You will be valued and treasured as a true asset.
Once again, we buy businesses, but we want everyone to come out of the deal happy – us, the vendor and the broker.