The vast majority of business owners I come across who commence the sale process have no previous experience in selling (or even buying) a business. Whilst strong business acumen helps considerably, the M&A process is quite complex in its entirety and littered with potential pitfalls for the inexperienced, unaware and/or ill-advised, therefore a strong team of external advisors is essential if you are to achieve the best possible result.
To which advisors am I referring? Lawyers, accountants, tax advisors, M&A intermediaries and business consultants all have a role to play in the exit process. And whilst you may have existing relationships in place, the importance of getting it right the first time when considering an exit means it may be time for an objective assessment of your current advisors and alternative options in the broader marketplace.
It goes without saying that not all professional advisors are the same: they vary in experience, expertise, education, strengths, personality and trustworthiness. If you remember the infamous Dennis Denuto portrayed in the iconic Australian movie The Castle, just because somebody is a lawyer (in that case Conveyancing) does not necessarily mean they have the specific expertise in the area of law in which you require assistance (in that case, Constitution Law). And whilst you may chuckle at the notion that your accountant or lawyer would be similarly unqualified to help you through the sale process, my experience suggests that it occurs more often than you may think.
So let’s look at the various professional advisors and what I believe they need to bring to the table if they are to be of the greatest benefit to you when selling your business:
1. Lawyer/solicitor – not only should your chosen lawyer have considerable experience in M&A transactions, but they should be outcome-focused. What I mean by that is they should be focused on helping you achieve your objective, and not solely on the technical aspects of law. I have been privy to instances of legal professionals derailing transactions unreasonably through their own stubbornness and self-interest, in some cases arousing suspicion that they were more concerned with lining their own pockets or not losing a good client that on actually achieving the desired outcome for the business owner.
2. Tax advisor – you need to get this person involved sooner rather than later (and they are not necessarily your existing external accountant). Your business’ corporate structure is one of the largest influencing factors in determining Capital Gains Tax liability, so if a restructure is needed to facilitate a clean exit you need to do it early on in the piece. Many businesses are structured for tax-effectiveness on income produced by the business, but are a nightmare when it comes to selling. As such, you need to find an absolute expert in this area to help, particularly if you are not 100% sure of your usual accountant’s capabilities in this area (they may be great at filing tax returns, but not so good on tax strategy).
3. Accountant – due diligence-ready financials are a must when it comes time to sell, and as with the corporate structure you should start thinking about this as soon as possible. Your accountant will also be involved through the due diligence process and will often be tasked with dealing with their opposite number on the buyer’s side, so they will need a deep knowledge of the ins and outs of the accounts. Are you comfortable that your accountant has the intimate knowledge and character to effectively represent your business? By the way, unless your accountant holds a Business Broker license or an AFS licence they will not be authorised to represent the business as its agent (see next paragraph for more on Intermediary requirements).
4. M&A Intermediary – different-sized businesses need different kinds of intermediaries. Small or micro business that will sell to an owner/operator for up to $500k are best handled by a local business broker, but some industry specialisation should be a criteria in your selection of this person. Larger SMEs that will be of more appeal to trade or financial buyers (i.e. corporations or private equity firms) require a different level of broker, one that specialises in your sector and handles transactions within the $1m-$20m range. Large privately-owned businesses that will sell for upwards of $20m should appoint a corporate advisory firm to handle the mandate, due to the likely complexity of the transaction and the processes involved in selling these larger businesses.
Please note that intermediaries MUST hold an appropriate license to be authorised to act on your behalf. Business brokers are licensed in their State or Territory under Real Estate Agent legislation, whilst Corporate Advisors tend to be licensed under Australian Financial Services legislation at a Federal level. Trading as an intermediary without holding a license is against the law and could see the offending advisor facing significant financial penalties and even jail time. Compounding matters is their Professional Indemnity insurance will not cover unlicensed activity, so you may have no recourse in the event that you need to take legal action. So make sure you ask the question under which licensing regime are you operating?
5. Business Consultant – this person(s) should be working with you for 12-24 months prior to putting the business on the market to ensure it is exit-ready. A good consultant will ensure your business systems are in place, the business’ reliance on you is minimal and that its risk profile is as low as possible. Like the other categories, any consultant you appoint should be able to demonstrate subject matter expertise and ability to influence value.
So when should you start the process of evaluating and appointing your advisory team? The best answer is: Today.
If you are planning on selling your business at any time in the future – or even contemplating alternative exits such as family succession, IPO or Management Buyout – your advisory team will prove crucial to the success of the process, when it happens. Some are involved more at the front end, some more during the transaction itself, but exit-readiness is built around having the best possible advice to achieve the best possible outcome. Just don’t leave it too long.
Andrew Cassin is an Exit Advisor and Business Broker licensed in Queensland, New South Wales and Victoria. His company, Acquisiti is premium business brokerage and advisory firm, providing services aimed at maximising the exit result for its clients. Andrew holds a Bachelor of Business and has pursued post-graduate studies in financial services, corporate governance, mergers & acquisitions, and change management. For more information contact Andrew via email at enquiry@acquisiti.com