Thursday, 31 January 2013

A Video Overview- How Can Axis Assist Me When I Sell My Business?

How Can I Sell My Business with Axis?

Here at Axis Partnership we pride ourselves on our ability to assist people considering an exit as professional Business Brokers.  This video is a brief overview to show how the assistance of an experienced agent working with you, your legal team and your accountants can help smooth the transition from initial contact and preparation through valuation, the commencement of marketing, introductions, due diligence and completion of sale.  

Robin Boxall-Hunt, Managing Director of Axis Partnership

Wednesday, 30 January 2013

I Want To Sell My Business Via A Management Buy-Out (MBO)

I Want To Sell My Business To My Management Team

Traditionally it is well documented that less than one in five business owners would consider selling their businesses to their management team.  The reasons are obvious – Management Buy Outs (MBO’s) need careful thought and planning.  However since 2008 and the impact on appetite and demand in the Mergers & Acquisitions sector as a whole, the perception of MBO’s have begun to change and they have become more popular with a number of key advantages.  As a Business Owner, do the benefits of an MBO outweigh the potential risks?

Advantages Of An MBO

So what are the advantages of an MBO?  Rather than have to go to the market place, the Buyer has instantly been found, and the Vendor will be confident that they have the same business ethics and ethos to ensure client relationships are preserved and the name of the Company and legacy is maintained.  Also one of the main advantages is that confidentiality can easily be contained in-house, removing the risk of competitors finding out that the Company is on the general market and any detriment affect from this relating to clients or staff.  MBO’s allow Vendors to be more comfortable about structuring a deal over a longer period of time than they would do with an unknown 3rd party, ensuring there is minimal disruption.  The risk involved in the change of power can therefore be minimised.

Disadvantages Of An MBO

As with everything in business there is another side to the argument, with the main case against MBO’s being that as the Vendor you are limiting the competitive number of Buyers to just one!  A Company being marketed for sale in the open market could easily generate 8-10 potential purchasers, where an offer price could be significantly higher due to synergetic or competitive reasons.  Funding is also a common problem with MBO’s and can be the main cause for the deal to fail, whereas Buyers generated from open marketing would need to provide proof of funding, normally before serious negotiations even get started.  Often Vendors find themselves having to agree to a lower value deal with the MBO team than the Company is actually worth, due to this being the maximum amount they can raise.  Also a point for note is should discussions get underway for an MBO then there could be the risk of the management team not keeping their eye on the ball and the Company’s current performance could begin to suffer.  Alternatively, and even more or a concern to a Vendor, is that should the sale fall through, the Company would be left with a severely demotivated management team.  If the Vendor then looks to take the Company to the general market this instability would devalue the Company accordingly.

The Key to Success

The starting point is to ascertain whether or not the management team will have the appetite, ambition and leadership capability to grow the business, followed by access to finance, as this is the critical part! Anyone thinking "I want to sell my business," should seek specialist help and advice to ensure that a succession plan is carefully implemented so that a flexible, staged exit can be managed, ensuring that sensitive issues and individual aspirations can be dealt with. Working alongside experts in this field can ensure that the business is made as attractive as possible in order to achieve the necessary finance and of course, allowing the Vendor to achieve the full value of their Company!

Adam Croft, Senior Business Broker

Tuesday, 29 January 2013

A Video On Due Diligence- What Happens Once A Deal Is Agreed?

When you sell your business, agreeing a deal isn't the end.

At Axis, we do more than just introduce you to buyers, we stay with you throughout the whole of the Due Diligence process.  When you sell your business, you need to be aware that there's still a great deal of legwork, preparation and negotiation as buyer's agents go through your business with a fine tooth comb after you accept their offer.  This video explains the ways Axis can assist you during this period, and explains some of the reasons we may be needed.

Robin Boxall-Hunt, Managing Director of Axis Partnership

Monday, 28 January 2013

How To Maximise A Buyers Finance Model To Your Advantage

What do ROI and IRR mean and how can understanding them help sell my Company?

All astute Business people, and in particular financially driven Buyers (Venture Capitalists, Private Equity Firms etc), will know the cost of equity and will only make investments that provide a return in excess of that cost within a reasonable timeframe.  In general terms, financial Buyers of SME Companies are looking for a Return on Investment (ROI) or Internal Rate of Return (IRR) in the range of 20-35%, depending on the sector of operation and the risks associated with that particular industry.  Providing proof to this type of Buyer that purchasing your business at your valuation expectation will allow them to achieve the IRR thresholds they are looking for is vital.  

How can I calculate this?

Here's a step-by-step summary of how you perform the analysis:
For example, if I want to sell my Company which has a £2 million value expectation, for simple terms let's say that an appropriate debt-to-equity ratio in the current M&A environment is 50 percent debt and 50 percent equity.  In this case, an acquisition of my business could be financed as £1 million in debt and £1 million in Buyer's equity.

What happens next?

1.  The first stage is to understand how the acquisition of your businesses will be financed, as this is pivotal in positioning your Company at an attractive IRR.  Talking to a finance firm, Bank or broker who specialise in M&A deals in your sector will allow you to confirm the current level of debt to equity which deals are being based on.  Once you have this information you can use this ratio and apply it to your value expectations to see whether they are realistic in the current market.  

2.  The next stage is to determine the forecasted sales, overheads and free cash flows of the business over the next five years, including the cost to service the debt amount used in the acquisition.

3.  Calculate the equity remaining for the Buyer assuming that the Company will be sold after five years at a conservative multiple of EBITDA (usually the same as the entry multiple).

4.  Use the initial equity investment determined in No.1 above, the free cash flows after debt servicing in No.2 and the equity remaining for a Buyer upon a subsequent sale in No.3 to calculate the potential IRR on their investment.

Hopefully, this analysis proves that the valuation of your business will earn your Buyers a return on investment in line with industry standards, or ideally a much more higher and attractive uplift. If not, you might have to reassess the reasonability of your valuation expectations. Effectively in this analysis, you have taken the Buyer's IRR and used it to your advantage, creating a ‘win-win’ scenario when negotiating a deal.

Valuing a Company is more common sense and financial calculations than science or magic, and of course every Buyer will value you differently, the key is to find the Buyer who will pay the highest price and effectively has the greatest need for the acquisition to occur.  If you are prepared to instruct advisors who know the market and how to tailor information for each individual Buyer, you can work toward getting the valuation you want.

Adam Croft, Senior Business Broker

Friday, 25 January 2013

A Video On Marketing- How Can Axis Attract Those Buying A Business?

How does Axis contact people buying a business?

Axis has a number of ways to contact potential purchasers; as well as our known buyers we have a personal relationship with in our core sectors, we have extensive databases and market directly, through email, online and through social media.  For many of our clients, confidentiality is of paramount importance and marketing is tailored accordingly.  As our video explains, we can reach people buying a business through a variety of means throughout the sales and marketing process.

Robin Boxall-Hunt, Managing Director of Axis Partnership

Warranties & Indemnities – A Basic Guide If You Sell Your Business

What Are Warranties & Indemnities For?

If you choose to sell your business and manage to find a Buyer, once the Buyer has reviewed all of the information provided in the Due Diligence bundle, they will assess with their advisors the areas that they perceive are a risk, or that there is potential for a future liability to arise from.  Acquiring Companies is naturally a risky process, and Business Owners who are risk adverse will never be successful in growing through this method.  However, as every successful Business person would agree, if there is potential to limit your risk then it would be foolish for this route not to be taken.

Warranties are included within the Sales or Business Purchase Agreement, and are basically comments stating the current standing of the Company, protecting the Buyer from any ‘skeletons founds in the closet’ once they have taken ownership.  Warranties are usually generalised to cover the Buyer for standards areas, such as ‘The Company has no outstanding HMRC liabilities’ or ‘The Company currently does not have any outstanding grievance claims from previous/current staff’.

Within the contract the Warranties will be defined to cover a set period of time, and are usually capped at a maximum amount equivalent to the purchase price paid for the Company.  During Due Diligence if the Buyer finds out about a potentially liability or area of concern, and they wish to specifically protect themselves against this, then they will include details of this under the Indemnities.  For example “Should any claims arise in relation to the CVA then the full amount payable will be borne by the Vendors including any legal costs or interest” or “Should Mr James be successful in their claim of unlawful dismissal against the Company then the full compensation and legal costs will be borne by the Vendor”.

How Can A Broker Help In This Instance?

Having the correct advice in this situation is crucial for Vendors, as warranties and indemnities can be up to the financial consideration you received for the Company, and can be in place for up to 7 years after the sale.  This means that 7 years after you have sold your Company, and in reality either spent or invested the money elsewhere, you could be taken to court and forced to pay back the money you received if you have breached the warranties or indemnities within the contract you signed.  The key thing in place to protect Vendors from this scenario is the ‘Disclosure Letter’, a document which allows you to detail any areas of the Company that may breach the stated warranties for the Buyer to review before purchasing the Company.  This allows you the opportunity to make the Buyer fully aware of any issues before signing the contract, meaning they cannot come back and look to claim against these points in the future.

Obviously any disclosures that are made need to be made in full, and there is the risk of the Buyer walking away at this stage if they find out information that they are not willing to proceed with.  Understanding the Company, and honestly reviewing the areas that Buyers may see as a concern or want to warrant against at the outset, is one of the most important things to review when you sell your business, and talking through with professionals can save time, costs and emotional stress at a later stage.  Once your advisor or broker is aware of any potential issues then these will be raised with a Buyer at the appropriate stage, ensuring that these issues are factored into any deal and form part of negotiations, and removing any ‘last minute’ surprises for either party to ensure the sale concludes.

Adam Croft, Senior Business Broker

Thursday, 24 January 2013

A Video Explaining Valuations- How Does Axis Value My Business?

How Does Axis Value My Business?

When valuing your business it is crucial to consider not just the financial performance, but also the business itself.  No two businesses with the same turnover are going to have the same value, and a professional valuation is essential to determine the operational strengths and weaknesses of a business.  Another crucial factor is your industry. Ask yourself- would I be able to accurately value my business without knowledge of my industry?  Combining these factors with the variables of market forces and the individual needs of potential purchasers, a valuation can be based on much more than just your most recent accounts.  This video gives a short overview of valuations at Axis, and how we can help you.

Richard Haden-Scott, CEO of Axis Partnership

What Dictates the Multiplier Used to Value a Company?

How to Value a Company Using Multipliers

When selling or buying a Company, understanding the factors that drive the valuation is crucial.  In general terms, factors that dictate the multiplier include:

1.  Supply & Demand – Companies in attractive, high demand industries will command a higher multiplier than those in more basic or out of favour sectors.  Today, healthcare and high tech are two examples of high demand industries which are generating very attractive multipliers.  The supply aspect is also critical.  If there are plenty of attractive, profitable and well managed operations on the market (i.e oversupply) prices will generally be lower as it will be a ‘Buyers’ market’.  On the other side, if there is a high demand but a low number of quality Companies being sold, this will lead to Buyers paying a premium.  As a Vendor therefore, timing the sale of your Company to coincide with when the demand in your market is at the highest will lead to the highest value being achieved.  Many Vendors I speak to think wrongly that increasing their profitability is the only aspect they need to focus on, when in fact the question of how to value a Company involves more variables than this.  A Company could be worth more with less profits if they time the sale right, potentially allowing them to exit earlier than they perceived.

2. Growth – Despite every Buyer focusing on the last 12 months to 3 years of earning, Purchasers are buying the future.  What ultimately matters to a Buyer is not what your Company earned last year, it’s what the Company could earn in the future once they own it.  Therefore businesses with high potential growth rates will sell for higher multiples than slow growth Companies. 

3. Risk – As mentioned, Risk plays a role in every business decision.  It is common knowledge that safer assets have lower rates of return than high risk investments.  The more risk a Buyer is willing to take, the higher return they will demand.  Therefore a Buyer will offer less for a Company that they perceive carries a lot of risk.  As a Seller there are ways to mitigate the risk

4. Volatility – This is closely related to Risk, though it is linked with external factors rather than competition or dependency on clients.  When determining how to value a Company, if the industry that a Company operates within is heavily influenced by external factors, then the future earnings of the Company are less secure, and therefore a Buyer will look to protect their investment accordingly.  For example, those Companies operating within the Public sector are subject to cuts in spending or budget changes which occur often when new Governments are elected, therefore if the sale is closely timed to a General Election then a Buyer will take this into account when making an offer.  Likewise those Companies operating in the Lettings/Estate Agency sectors, or those linked within the wider Construction industries, are linked to external factors such as the Property Market and the economic climate, not just for the UK but the Eurozone and USA.  A final example is Recruitment Agencies or Training operators, whose revenue streams are heavily influenced by Employment levels and the Private sector, therefore experiencing peaks and troughs with growth years and recessions accordingly.

5. Synergetic Values & Savings – A strategic Buyer will often pay more for a business if they believe the combination has many synergies as well as the opportunity for cost reductions.  These types of Buyers are more likely to pay a ‘premium’ to secure a deal, rather than risk the target Company being acquired by a competitor and potentially threatening their Company going forward.  

Adam Croft, Senior Business Broker

Wednesday, 23 January 2013

A Video On Selling- Why Should I Sell My Company With Axis?

Why should I sell my company with Axis?

Our Managing Partners have themselves had experience in selling a company, and Axis uses this experience with our many years of expertise in negotiating and selling to provide a service to support our client's needs no matter how large or small the business.  We pride ourselves on finding the right buyer for your company, not just any buyer.  This video explains how Axis approaches the sale of your company, with our strong negotiating skills we are an excellent choice of broker for those looking for a business transfer agent.

Richard Haden-Scott, CEO of Axis Partnership

Tuesday, 22 January 2013

How Much Is My Business Worth? - Understanding EBITDA

EBITDA And The "True" Value Of Your Company

People often talk about selling a business and say, "I sold my business for five times" or “I want six times for my Company”. The first thing I always think is "Five or six times what? PBIT (Profit Before Tax), Gross Profit, Turnover?” Of course the most common method to value a Company in the SME market, and the one savvy Vendors will be aware of, is EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), but even then the majority of Vendors and Buyers are unaware there are variations of EBITDA. When Brokers and Advisors talk about EBITDA this is the figure calculated based on the last set of filed Accounts. However there is also TTM (Trailing Twelve Months) EBITDA which is calculated based on management accounts and recent financials, as well as NTM (Next Twelve Months) EBITDA which is based on forecasts and projections. Each one of these EBITDA definitions will calculate significantly different valuation figures, so it is vital to ensure the correct method is utilised to maximise the amount you receive from a sale.

When asking "How much is my business worth?", here is a valuation tip to help you achieve or exceed your value expectations:

Calculate Your Implied Valuation Multiple

Similar to Sellers bragging about selling for high valuation multiples, Buyers like to boast about how they got a great deal, paying a low multiple. As a Seller this is something you can use to your advantage, remembering that the end goal is to get the highest total purchase price, not the highest multiple. By knowing your Buyers you can calculate the valuation multiple based on various metrics to find - and show - the one that's the lowest. 

For example let's say that your business has an EBITDA for the last fiscal year-end at June 30th 2012 of £500,000. Today is January 31st 2013, and your TTM EBITDA has increased to £600,000. The Company is continuing on an upward trend with increased clients and volume of sales, and will reach NTM EBITDA of £800,000 by June 30th 2013. If your valuation expectation is £2.5 million, then the implied valuation multiples are:

• 5x Last Fiscal Year EBITDA
• 4.16x TTM EBITDA
• 3.125x NTM EBITDA

So, what I tend to do is help potential buyers find the lower EBITDA multiple so that they can go to their board of directors, investors and other stakeholders glorifying that they got a bargain deal for your Company by only paying 3.125x - even though it's really just a different way of portraying the same valuation. 

Adam Croft, Senior Business Broker

Thursday, 10 January 2013

The Axis Partnership Road Show 2013

Following the success of our 2012 seminars we are expanding our programme into 2013 with a series of short highly informative seminars aimed at business owners throughout the UK. If you have a business for sale in UK markets or think you may do in the future, the Axis Partnership provides professional services to their clients by valuing and supporting the buying and selling process from beginning to end. We offer an inclusive service to business owners allowing them the freedom to run their businesses throughout the sales process. Axis are specialists in the sale and acquisition of SME businesses in the UK up to approximately £20m in turnover.

Who should attend?

The Seminar Road Show is aimed at business owners considering selling their businesses during the next 5 years. We can support sole traders, partnerships, Limited Companies and PLC’s.

I have already instructed an agent?

If you have already registered your business for sale with your accountant, solicitor or another merger and acquisition specialist and have not yet obtained a successful offer we may still be able to help you. The Seminar is FREE and so are our Business Valuations so you really do not have anything to lose.


What will I gain from the Seminar?

Each seminar will include an explanation of the way we value businesses with examples of our valuation reports. It will also consider the general market trends for business sales and purchases within the UK. You will also be presented with a pack at the end of the meeting with our compliments.


To ensure confidentiality and to enable all attendees to speak freely, this seminar will be held under Chatham House Rules: "When a meeting, or part thereof, is held under the Chatham House Rule, participants are free to use the information received, but neither the identity nor the affiliation of the speaker(s), nor that of any other participant, may be revealed".


• The Reasons behind Business Valuations 

• The Way we Value Businesses and Why
• Fact Finding
• Valuing Businesses and Methods Used
• Variables Concerned with each Sector
• Customer Relations
• Our Valuation Service
• Sales, Marketing & Process

Seminars are FREE and places are limited so please reserve your place early to avoid disappointment

Robin Boxall-Hunt, Managing Director of Axis Partnership