x Abu Dhabi, UAEWednesday 26 July 2017

How to sell your small business

The Life: Hani Zaitoun, a Dubai investment consultant, rolls out a blueprint on the perfect exit strategy.

Illustration for The Life by Lee McGorie / The National
Illustration for The Life by Lee McGorie / The National

Selling your business? Thinking it's time to cash out, but you don't know how to go about it and what to expect?

This is a blueprint to help business owners foresee the process ahead and start preparing to achieve their goal.

Maintain financial records

From the outset, arrange to have proper bookkeeping. Maintaining good financial records provides insight on the performance of your business and, importantly, provides an indication as to how the business can be valued. Get an accountant and get your statements audited by a reputed firm. Do not compromise on this.

Management structure

Most shareholders and founders of small and medium-sized businesses maintain a hands-on approach. They develop the business through their relationships and acumen. Having said that, in preparation to divest it would be prudent to create a management team and delegate responsibility. From a buyer's perspective, this is an additional comfort that the business is not solely dependent on its founder.

Before starting the sale process, it is crucial for a business owner to determine his goal. Are you divesting a majority or a minority stake? Are you looking to cash in on your equity, or to finance growth? Are you looking for a strategic partner or a financial supporter? These can be discussed with your financial adviser and once that is established, a strategic plan is set.

The process

How do you go about appointing an adviser? You have to bear a few key points in mind.

One, it is not about attaining the highest valuation for your company. You do not appoint an adviser on this pretext. Rather, the skill set of the team - their abilities to negotiate effectively, to derive a fair valuation and to prepare the marketing material in an outstanding manner, as well as their dedication to the job - are what count.

Once an adviser is appointed, the first thing they will do is gather intelligence about your business. To gather intelligence requires a level of trust to be established by both parties, and full transparency is a must on behalf of the business owner. If there are any issues, it is best to deal with them at the outset rather than raising them during due diligence, which may jeopardise the whole process.

After gathering and analysing the information, the adviser will go about preparing the valuation and the pitch book, along with a shortlist of the potential acquirers.

Then the adviser will start a roadshow and communication to the market with a teaser. A teaser is a brief about the opportunity without disclosing the name.

Potential acquirers will review the pitch book and may request a meeting with the owner to obtain further insight and raise initial concerns. At this stage, initial offers are submitted for review.

The adviser will arrange to establish a data room ahead of the expected due diligence. This is a virtual room whereby all information is uploaded to be shared with potential acquirers who have submitted an offer.

In some cases, potential acquirers will request exclusivity on a deal. Usually, exclusivity periods are tied with a deposit or a break-up fee. If the potential acquirer backs off from the deal, the deposit or break-up fee would be collected by the business owner.

The adviser accompanies the owner through all stages of the process until closure. He or she will coordinate with the due diligence team, streamline the information, discuss findings, synchronise with lawyers on drafting documents, and lead discussions and negotiations.

A typical deal will take from six months to a year.

Hani Zaitoun is the founder of Kairos Group, an investment consultancy in Dubai