Selling our LTD business

[anonanon22]

We are now in our late 50s and consider selling our successful construction business. Based on various metrics and advice, we value our business around £9m.

Somewhat out of the blue, and perhaps earlier than we'd planned to sell, we were approached by a large multi-national company interested in buying. We've had initial discussions and their first, verbal offer was in the £6m ball park.

Does anyone have any insight into selling a business and with knowledge of how much lower the initial offer might be than that eventually agreed upon? I'm assuming that the acquiring company expect us to negotiate. We really don't want to sell at that price.

The company also want us to continue working for another two years, whilst holding back 35% of the 'sell price'. Is this a reasonable % or do you think we might be able to negotiate down on this so that we receive a higher % upfront?

I'd like to throw it out here as our accountants have just been taken over and so we're not sure whether the advice we're currently receiving is the best.

Thanks.

Wow! If I had a 9 million pound business I wouldn’t be asking for advice on mumsnet that’s for sure

It's not the correct figure btw - as didn't want to give it away - and we do have advisors but keen to hear others' experiences on here..

I feel that watching all four seasons of Succession will amply equip you for this negotiation 😂(the last two seasons are mainly about a merger between two mega-corporations).

In reality I think it would be money well spent to find a business consultant who specialises in mergers and acquisitions? To advise you more accurately on what the company is likely to be worth and how best to negotiate a price you want.

What I've observed from several acquisitions in companies I've worked for is that the chief exec of the company being bought is always told how valuable he/she is and how they want him/her to become a member of the new board. I have yet to see this actually be true. I think it would be less painful to watch if the acquirer said to the acquiree up front 'we will aim to make your post redundant within one year. If we want to and you want to, you may be able to continue past that point but we don't know and won't know until the year is nearly up'. So I would also want to know more about this clause about staying on and withholding part of the sale price. I don't like it. Either sell or don't sell but this feels too half-in-half-out for my liking. If the goal is to stop you from setting up a rival company they need to offer you golden handcuffs or making it a condition of the sale.

@tribpot interesting what you say about staying on the board as the owner/CEO. It's exactly what they've said and certainly DH is very well known and respected in his line of work and still deals with clients day-to-day.

Thanks

But surely he will hate going from the boss to some kind of director of someone else's company? I would be very doubtful that, even if the acquiring company genuinely means it now, they will still want to keep him around once your company has been subsumed into theirs. I would want to be very clear about what involvement I wanted to have post-acquisition as you do need to accept it will no longer be your company.

Does your DH know anyone who's sold their firm in a similar way? That's who I'd really want to talk to, to find out what it's like when your baby is no longer your baby.

Tbh we/he would love to just sell and leave, but the acquiring company is concerned about the continuity, quite niche, and keeping on existing staff, many who have been with us for decades.

You need proper advice not Mumsnet with fake figures 🤦🏻‍♀️

Look the basic of any negotiation is to go in at the lowest price possible so theres no way on earth you’d go back in that region. It’s clearly worth more.

I agree with the pp you shouldn’t be asking on mumsnet.

I know of two people who sold their business' and both were required to stay on in some capacity as part of the deal. I think having the person who built the business up stay on is invaluable and part of the ongoing success for the business, rather than a complete and total handover. Either as a full time position for an agreed period or as a consultant.

I would really try to minimise the withholding/later payout part of the sale, and ideally not continue to work for them or only in a very minimal/time limited capacity. 2 people I know who did this when they sold their (totally different) businesses ended up getting screwed over for the final payment and losing a lot of money, getting ditched from the company and feeling very bitter and resentful. They were both very confident initially of getting the whole payout so it was a massive disappointment. So based on that I would almost write off getting any later payment and base it all on whether you are comfortable with the first payment. And as people say, get good professional advice.

I think the carrying on and getting part of the money later is quite common isn't it? My friend sold his company for over 100m and had to stay on for 3 years for the transition. Had a massive non compete clause and some of the money was held back.

By half way through the 3 years he wasn't really going in anymore.

Do you perhaps wonder whether the reason they have suddenly approached you is because they've been keeping an eye on your business for a while, biding their time? And since your accountants has just been taken over, perhaps they have decided that now is the time to make an offer, because your new accountants are unfamiliar with the company's finances and long history?

The company also want us to continue working for another two years, whilst holding back 35% of the 'sell price'.

I bet they do. Sorry, but that is the cynic in me talking. In that two years, they could well hive off a lot of the business, or asset strip it (or even bankrupt it, come to that) and at the end of the two years, they'll say 'Oh, sorry, the business isn't worth what we thought it was, we're not going to give you that 35% after all. Byeee'.

On the whole, I'd suggest you get an independent valuation of the business, and sell it lock, stock and barrel. No holding back on a percentage, all or nothing.

They are undervaluing your company and deferring a huge chunk of the proceeds (which they will try to wriggle out of). They are effectively offering 40% of what you think it is worth.
You have little to lose if you give them a stern eff off (though be slightly polite with your offended response if you think that they may be the eventual buyers). Meanwhile, start planning now for the original scenario - two years goes very quickly!

I stayed on for 3 years which was a bit longer than the owner originally wanted but covid got in the way.

It's best to have a date so neither party feel bad letting the other go. Its definitely good to stay on but have to understand it will be very different and the new ways will need to be adopted. If you take a positive view its really interesting too seeing how others work.

We also had a phased payment and you need legal advice to help with the contract and business sale and tax advice from an accountant. Luckily it appears you can afford it. Well done.

Happy to help give some guidance - this kind of thing is what I do in my day job.

If you are concerned about the level of the offer you should get a specialist valuer to carry out a valuation - otherwise you'll never know if you are getting what the business is really worth. That said, a valuation is a bit of an art, not a science, and there can be a big range in possible values. But, if you have a valuation to rely on then you have grounds for asking for more money, or just saying no and waiting for a better offer to come along. When you've invested so much of your life into your business you need to know that you are being paid what it is worth.

It is very common for part of the purchase price to be deferred for a year or two, and made contingent on the owners continuing to work for the business. However, what I've found with clients who have done this is that 2 years working for someone else can feel like a very long time - maybe see if they'll reduce it to 1 year, and check how much you're going to have to work - 3 days a week consultancy is very different from full time. You'll also need to negotiate terms around what happens if you get sick, or the company makes you redundant - you shouldn't lose out on your money in these kinds of circumstances.

It's definitely possible to negotiate, though whether that is successful depends on the buyer. What you really need is a corporate finance advisor (I'm a lawyer, so not me). They should understand the market, and be able to advise you on what is reasonable to accept. Usually they work for a basic retainer, with a success fee on top if they manage to negotiate a successful sale. Some accountants offer corporate finance services, but usually only the bigger ones. I'd be happy to recommend some that I've worked with if you want to DM me.