how to maximise value a5 master
TRANSCRIPT
HOW TO MAXIMISE VALUE WHEN SELLING
A FOOD BUSINESS OR BRAND:
THE POTENTIAL PITFALLS
AND GOLDEN RULES
1. INTRODUCTION 1
2. FOOD STRATEGY ASSOCIATES -‐ OUR EXPERIENCE 2
3. THE 6 MAJOR PITFALLS AND THE 3 GOLDEN RULES 3
4. GOLDEN RULE 1 -‐ BE SURE OF THE STRATEGIC RATIONALE FOR DISPOSAL AND SET REALISTIC PRICE EXPECTATIONS 5 KNOW WHY 5 KNOW THE IMPACT 6 KNOW WHAT THE BUSINESS IS WORTH TO YOU 6 KNOW WHAT THE BUSINESS IS LIKELY TO BE VALUED AT BY BIDDERS 6 SALE READINESS AUDIT 7
5. GOLDEN RULE 2 -‐ SET THE PROCESS TO MATCH YOUR PRIORITIES 8 KNOW WHAT’S IMPORTANT 8 KNOW YOUR BIDDERS – STRATEGIC OR PRIVATE EQUITY 10 KNOW YOUR BIDDERS – THEIR ISSUES AND MOTIVATIONS 10 THINK CAREFULLY ABOUT YOUR TIMING FROM A BIDDER PERSPECTIVE 10 SET A REALISTIC TIMETABLE 11 SALE READINESS AUDIT 11
6. GOLDEN RULE 3 -‐ PREPARE, PREPARE, PREPARE! 12 SALE READINESS AUDIT 12 BUSINESS HISTORY 12 THE BUSINESS PLAN 13 PRE-‐SALE INVESTMENT 14 ISSUE RESOLUTION 14 SEPARATION 15 RISK OF BUSINESS UNDER-‐DELIVERY THROUGH THE PROCESS 16 MANAGEMENT READINESS 17
7. SUMMARY 19 ABOUT THE AUTHORS 20 CONTACT DETAILS 21
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1. Introduction Although prices have generally fallen versus the peaks of eight or ten years ago, the multiples currently being paid for UK food businesses span as wide a range as ever. It is our view that this is not just due to differing qualities of business being sold but also due to differing qualities of sale process with, in many cases, poor processes leading to lower multiples being realised. Even on relatively small transactions, each turn of EBITDA on the sale multiple can represent tens of millions of pounds of value, often forfeited by sellers for want of some basic best practice in conducting a disposal.
We see many organisations which appear to rush into a decision to sell a business. Having often delayed the inevitable, management is keen to get through the perceived pain of a sale process as fast as possible and move on to the new world. Advisors are appointed, information memoranda are written in haste and potential acquirers are approached. So the process begins. Too late to consider the credibility of plans to the outside world or the separation needs of your preferred bidder. Resources are stretched and tight timetables are dictated creating further pressure to get the process over with. Buyers perceive the lack of control as opportunity.
Effective sale processes bring together two factors which at first appear contradictory: firstly they follow the basic selling imperative of making it easy for the buyer by removing unnecessary obstacles, but they also make the bidder(s) feel pressure. Both factors are critical to maximising the seller’s value. Sellers who understand their universe of potential bidders and put themselves in the shoes of their targets prepare a process that will maximise the interest and competitive tension in that universe. Those who don’t risk losing potential bidders: sometimes even before the process has started.
In this short paper we outline some basic steps by which sellers of businesses or brands can maximise value and we recommend how to avoid some of the pitfalls which all too often depress sale multiples in today’s environment.
“When working on the buy-‐side of an auction, the best run auctions have made me feel uncomfortable. I had all the information I needed, but not all I wanted to make a decision. But I felt pressure – the pressure of time, money and competition.”
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2. Food Strategy Associates -‐ Our experience Food Strategy Associates is a boutique strategy consultancy focused on the food sector. It provides strategic advice to those operating in the food sector and those looking to invest in the sector.
Its founders, Robert Lawson and Will Carter have between them over 50 years of experience as executives operating within the food sector. Working with Associates they are able to bring specific and relevant food expertise to address client problems.
We have managed more than 30 disposal processes and participated in a similar number of acquisitions, together representing over £7 billion of transactions. We have bought or sold businesses with transaction values from a few million to multi-‐billion pounds and completed transactions across the globe. We have sold businesses to large multinationals, small family firms and private equity backed MBOs. We have seen good processes and bad processes and we have identified the common elements of each.
We have identified 6 major pitfalls that often occur in sale processes – and to address these pitfalls we have developed 3 Golden Rules to follow through a sale process. Finally, to help organisations analyse their readiness to avoid the pitfalls and to follow the golden rules we have prepared a “Sale Readiness Audit” to assess whether a business is ready to be sold for maximum value and if not what gaps need to be filled.
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3. The 6 Major Pitfalls and the 3 Golden Rules
The Major Pitfalls We believe that there are 6 major pitfalls that vendors can often fall into when selling a business.
1. Unrealistic price expectations
Don’t launch a sale process on the assumption that a certain price can be achieved that falls above or at the extremes of realistic valuations.
2. Poor process design
Don’t design your process without thinking about what kind of process will best suit your business and the likely bidders for the business.
3. Launching a sale process when not ready
Rushing into a process without being ready is a recipe to destroy value.
4. Over-‐selling the business
We have all learnt to be sceptical of hockey sticks. Sensible plans grounded in rationale tend to be more persuasive!
5. Under-‐resourcing the project
Selling a business is enormously time consuming. Not resourcing the project appropriately will have consequences for the sale or your base business or both.
6. Management being under prepared and unaligned
Management should never be an afterthought in a sale process – after all they will sell the business for you. Make sure they are prepared and aligned.
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The Golden Rules Stumbling into these pitfalls can lead to lower proceeds or failed processes with considerably more stress and friction and, in our view, by sticking to the following 3 ‘Golden Rules’ these pitfalls can be easily avoided.
1. Be sure of the strategic rationale for the disposal and set realistic price
expectations
2. Set the process to match your priorities: Speed v Value v Certainty
3. Prepare, prepare, prepare!
The first 2 of these rules directly address the first 2 pitfalls. The third Golden Rule addresses all the other pitfalls as they all have the common theme of a lack of preparation.
Food Strategy Associates have developed a Sale Readiness Audit to assist businesses achieve best practice preparation. We bring a structured process to assessing the readiness of a business considering a disposal, configured around these 3 Golden Rules. We have set out below, in each section, the output you would get from the Audit.
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4. Golden Rule 1 -‐ Be Sure of the Strategic Rationale for Disposal and Set Realistic Price Expectations
Know why At the outset of any disposal process, know why you are selling the business or brand. This rule is equally a call to action to owners of businesses that do not fit, but who may not yet have considered a disposal. Too often business owners will shy away from selling those divisions or brands which no longer have a good fit, due to a perceived stigma of failure. This may only delay the inevitable – if a business is not a good strategic fit, it will underperform and risk ending in a fire sale rather than being proactively marketed to a better home when its value could have been maximised.
In concluding whether to sell a business, it is important to make a realistic assessment of prospects. When we advise food companies on this issue we are looking for whether there are likely to be step-‐changes in performance, up or down. Will a business realistically change its investment profile in a brand? Will the competitive dynamics in own label supply really mean that a business will suddenly win share it had failed to win previously? Or will a peripheral or non-‐core business suddenly become integral to the strategy in the future?
Bidders are always keen to understand why a business is for sale. A clear logic, that underpins their own investment rationale, is essential. A lack of strategic fit for the seller is a perfectly good rationale for sale and can underpin a growth story.
“I recall advising on the buy-‐side of a business that was in decline. Of course it had a fantastic forward growth trajectory according to management. But the vendors could not answer the killer question – “if the growth outlook is so good, why are you selling”. And as a consequence the growth outlook was discounted by our client – and by other bidders too.”
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Know the impact In assessing any business or asset for sale, management will need to understand the consequences for the remaining core business. On the negative side, this can cover anything from a loss of procurement scale or restructuring required in central administrative functions, to a loss of cash generation to support investment in the remaining business. On the positive side, it can remove a time and cash-‐consuming distraction, allowing management to devote all their energies to the core of their business.
Know what the business is worth to you To make an informed decision on whether to sell at a particular offer price, you need to know that the offer is greater than the value of retaining the business. This is not the value implied by the business plan prepared for bidders but must reflect the reality of how the business will perform if retained -‐ will it get the investment and focus it deserves? Does it distract from the group’s strategy? Will a sale free up funds to drive faster growth in another part of the group? Once you have this minimum acceptable price, stick to it and don’t be afraid to stop a process if offers do not come in at a high enough level.
Know what the business is likely to be valued at by bidders As you explore the sale of a business, test the likely price expectations with your advisors. Precedent transaction analysis is readily available in the food sector. In a typical year there are more than 20 transactions in the food space in the UK, 2-‐3 times that across Europe as a whole. And with that volume of transactions, year in and year out, there is normally a good history of transactions within narrower sectors of the industry, be it chilled ready meals or biscuits and crackers.
“Selling a non-‐core but capital intensive business a number of years ago, the advisors pointed to precedent transactions at a 9x EBITDA multiple but the market had changed, the competition for assets reduced and the growth outlook deteriorated. Unfortunately the advisors set Board expectations on a false premise. The Board rejected offers at 6x EBITDA and held onto the business but capital was restricted. EBITDA dropped substantially and the business was eventually sold for less than half the previously offered price.”
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However precedent transaction analysis is not sufficient for this task. If possible, have them confirm those price expectations with potential bidders. A good M&A advisor can test price levels without announcing to the world that your business is for sale. It is not unusual now, in this economic depression, for auctions to fail and often the reason is a mismatch of expectations between the vendor and the buyers. Have advisors estimated the value of your business simply on the back of precedent transactions? Or have they supported that analysis with up to date assessments of lending markets, discussions with strategic buyers and evaluation of bidder resources and priorities.
If there are limited strategic bidders, you could be dependent upon a private equity bidder for the business and unless they have strategic investments, the price level will be set by private equity economics, which are largely deterministic. An aborted process can incur significant costs, damage the business’ reputation and permanently destroy value, so never launch a sale process without understanding the bidder environment and whether you are likely to have bidders who are prepared to pay at least the minimum you are prepared to accept.
Sale Readiness Audit Through the Sale Readiness Audit we will assess the rationale for disposal against the Group’s strategic plans, validate the impact of the disposal on the remaining business and sense check the internal valuation and price expectations.
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5. Golden Rule 2 -‐ Set the process to match your priorities Know what’s important Once the decision has been made to sell, determine how to balance the three principal drivers in any disposal process: Speed v Value v Certainty. The seller must decide which is their key driver before they start the process. It is difficult to get all three:
• Increasing speed typically reduces preparedness and can reduce value. If speed is your priority you will need to throw more resources at the process or risk losing momentum midway through.
• If value is your primary objective then preparedness and timing to meet buyer needs becomes critical and risks slowing down the front end of a process, albeit it often allows for a rapid conclusion to that process.
• It is possible to increase certainty by reducing the minimum acceptable price or allowing bidders longer to enter the process and complete their due diligence.
For private label food businesses, confidentiality can be a particular concern. It is inevitable that customers will find out about a sale process before it announces, after all most buyers will insist on some customer contact during a process. But controlling the message and timing can be key and that requires an emphasis on confidentiality.
“During a process a few years ago, an adjacent factory had some rights over part of the property being sold. Speed was the priority in that process, so there hadn’t been the luxury of resolving the issue prior to launch -‐ the neighbour demanded a high price for resolution -‐ a clear illustration of how setting speed as the priority can impact on value.”
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Choose what kind of process you want to run to best achieve your priority outcomes -‐ Broad or narrow:
Consider how broad a process you will run. At one end of the spectrum is a competitive auction with a broad group of participants, whilst at the other is an exclusive process. In certain circumstances, better outcomes have been achieved with exclusive discussions. Each route has its merits. Consider the appetite for your business from strategic bidders and the suitability of the business for private equity investors. Also consider your own business and staff – will it and they be de-‐stabilized by a public auction process.
The received wisdom is that auctions generate higher prices because they are more likely to generate competitive tension. That is not always the case. The price for exclusivity for the buyer should be a price premium.
The wider the process, the more likely are the prospects of a leak. How will unions, customers and employees react? The answer may be different for a branded or a private label business. If your business is publicly quoted, how will you manage a leak with investors, analysts and lenders?
There are other considerations too. More bidders require more work, more management presentations, more questions answered, more contract mark-‐ups to have your lawyers review. In other words, more cost and more disruption.
“Working on a recent assignment where there was one clear strategic buyer, the client was advised to run an auction process in the hope of flushing out some competition. When this failed to materialise, it demonstrated to the strategic buyer that they had no competition with the result that they dropped their offer price and negotiated a very buyer friendly contract.”
“During the auction of a private label bakery business, a major customer became aware of it and promptly threatened to put the contract out to tender. It cost £400,000 to secure the contract without which the business could not have been sold. It may have been possible to avoid this by entering an exclusive process with one of the key strategic players in the market.”
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Know your bidders – Strategic or Private Equity If you are likely to have private equity interest in your asset, your sale process will need to reflect this. Even if you are hopeful of selling to a strategic investor, private equity bidders could play a vital role in supporting the price level for the asset.
Private equity investors have particular needs. For example, they will want to see clear plans on how you would support the transition of the business to the buyer or, if not already operating as an independent entity, how you would effect the separation of the businesses. If you don’t reflect those needs in your process, then they will not participate or will only participate at a reduced price. You will need to tailor your due diligence and separation plans to the private equity bidder and adjust your contract expectations.
Know your bidders – their issues and motivations It is critical in a process to stay close to the day-‐to-‐day perspective of your bidders. Good, experienced, M&A advisors are essential for understanding the market for potential buyers, assessing price expectations, identifying bidder concerns and issues which you can address and maintaining competitive tension. They should have a good insight into the bidders’ strategic drivers and how they change through a process. They must also understand how much the bidders can pay and, importantly, how to get them to pay it. They will utilise this information in the marketing of the business both through the construction of the information memorandum and the communication of information through the process.
Think carefully about your timing from a bidder perspective Unless there is an urgent need to sell, sell at a time when your key buyer universe are in a position to buy. Too often processes fail or businesses are sold cheaply because the obvious strategic buyers are occupied e.g. integrating a previous acquisition or absorbing recent management change.
“Working on the buy side of a transaction, the vendor decided on a process without vendor due diligence. The business would have been perfect for private equity, but without vendor due diligence, few private equity houses will consider an acquisition in a competitive auction process. Unsurprisingly, the competition was therefore limited to two strategic bidders.”
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Set a realistic timetable From a vendor perspective, there are significant advantages to a short process. There are fewer monthly budgets to be navigated through and momentum can carry bidders through to signing. Disruption is kept to a minimum and the risks of a leak are reduced. However, to run tight timelines requires that the necessary upfront work be fully completed.
Depending on the degree of competition for your business, enabling buyers to do proper due diligence may actually save time in the long run as bids will be fully diligenced and come with fewer caveats. It can also suggest to buyers that you feel you have nothing to hide. In the current economic climate, buyers, whether trade or private equity, are unlikely to sign until they have completed their due diligence or they will apply a significant risk discount to their offer price.
Sale Readiness Audit Through the Sale Readiness Audit we will evaluate how the proposed process meets the priorities that the Group has determined and review the anticipated bidder universe against our knowledge of the many participants in the Food sector. We will also consider the various elements of the timetable, particularly in reference to the buyer universe and complexity of the transaction, to determine whether, in our view, it can be accelerated or needs to be re-‐phased.
“Selling the division of a public company a few years ago, the CEO imposed an aggressive timetable. The problem was, the central finance function was small and could not deliver the data to support due diligence and simultaneously manage the annual planning cycle which was running in parallel. The timetable kept slipping. Each month vendor due diligence was updated to reflect latest performance and management conducted conference calls with each bidder. The process then had a cycle of wasted time and fees caused by an unrealistic timetable.”
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6. Golden Rule 3 -‐ Prepare, prepare, prepare! It cannot be stressed enough how important good preparation is for any disposal process. Pausing a process mid-‐way whilst you, the vendor, prepare more detailed capital expenditure and growth plans is a big dampener on value maximisation. It gives bidders time to ask more questions, to challenge their own assumptions, to question whether the business is under control, to change their minds.
And the longer the delays, the more likely it is that you will miss a monthly budget or target, and when that happens, it becomes necessary to explain every detail of the “miss” and why the long term value of the business is not impacted.
The starting point for a sale process should be an assessment of your own readiness for the process. Review the status with your management team and advisors and set plans for filling the gaps. But what does good preparation look like?
Sale Readiness Audit The Sale Readiness Audit assesses how prepared a business is against 9 headings to allow management insight into their preparedness and guidance on the priority issues to address. Our Audit moves step by step through the following headings.
Business history To be able to keep the confidence of the bidders, a seller needs to be able to demonstrate that the management team are on top of the numbers. Do not assume a potential buyer comes with the same accumulated knowledge of the business that you have. The historical numbers need thorough interrogation with trends identified and variances explained.
The back office team will need to be prepared and resourced to answer questions during the second phase of a process. For publicly quoted businesses, this could be a regulatory requirement. We will bring a buyer’s eye to the historical performance of your business and assess your preparedness for their questioning.
“Buying a business a few years ago, regulatory requirements in the UK necessitated we publish a shareholder circular with 3 years of historical data on an IFRS accounting basis. Because the vendor had not provided this, we were at a disadvantage in the process versus other bidders. If the vendor had done the work up front they would have created more competitive tension in the process.”
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The business plan A credible business plan is critical to any sale process. Our audit will rigorously interrogate the plan as will any bidder when a process is initiated – if there is anything unbelievable about it, the buyers will not believe. If there are holes, you risk the buyers filling them with pessimism. Vendor commercial due diligence can be very useful, particularly when private equity are potential bidders, but superficial and over-‐optimistic vendor due diligence can do more harm than good.
If your business has export or other presence in emerging markets, consider that both strategic and financial bidders may place disproportionate value on credible growth plan in those markets. As growth has slowed in developed markets over recent years, attractive sales multiples have increasingly been driven by international growth potential.
Buyers also need to understand how the business’ strategy fits with theirs and, possibly more importantly, that it can be implemented.
Our audit output will highlight the strengths, weaknesses and credibility of the business plan from a bidder’s perspective.
“On the buy-‐side of a transaction, the business MD pointed to an upside opportunity – “Introducing these products to the brand has a 3 month payback”. Naturally we asked why he hadn’t implemented the idea, but in reality any answer would have been treated with the same scepticism – “if it is such a short payback, why haven’t you implemented the idea yourself?”
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Pre-‐sale investment Too often a business being put up for sale by a larger group as ‘non-‐core’ sees its brand investment and capital expenditure slashed and management loses focus as the business is no longer a priority. Real damage can be done to the business’ competitiveness and whilst cutting investment may give a short-‐term boost to profitability it is, more often than not, discounted by buyers. Any delays in the sale process may then see business performance suffer with a disproportionate impact on the disposal price and certainty. Forward plans are often presented with a step up in investment with consequential sales and profit uplift but these lack credibility because, if the investment has such a good payback, why isn’t the seller doing it themselves? In the current economic environment, buyers are likely to discount the upside and focus on the risks. They are as sceptical of hockey-‐stick plans as everyone else. Our audit addresses the credibility of the plan in the context of proven investment returns.
Issue resolution We will help to identify the issues that will require routes to resolution before the bidders start to worry about them. Often in the food industry there is limited documentary evidence for contracts with customers. You will need to understand which unconfirmed contracts bidders focus on and, particularly for private label contracts, which need to be secured over the period of the transaction. Legal disputes can also be problematic, so identification of resolution of any outstanding legal issues will remove risk from the transaction of value leakage or onerous contractual provisions.
“Selling a business that had been starved of investment for a number of years, management decided to re-‐start the investment in capital and brands before the sale process was initiated. As we had clear plans and backed these plans up with cash investment, under-‐pinned by quantitative market research the discussion was focused around the second phase investment plans.”
“During one disposal process, there was an outstanding legal claim because of bad odours that the factory had sometimes released. This became one of the major sticking points during negotiations, ultimately requiring complex indemnities. Settlement of the claim in advance of the process would have saved legal fees, avoided the indemnity and reduced the risk of a price chip.”
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Separation We will audit the question of separation, from the perspective of the likely bidders – whether strategic trade buyers with existing infrastructure, or private equity bidders without. If the business being sold is significantly integrated into the rest of the vendor’s group, we will assess the separation plan and highlight the likely concerns of bidders. Bidders will need to have confidence that they will be able to transition the business across to their own infrastructure with minimum disruption. They will have to explain the separation challenges to their lenders and shareholders, so the investment in making it easier for the buyer may be more valuable to the bidder than the vendor might initially calculate. For food companies, these issues of separation will often include tidying up the brand between vendor and acquirer through license agreements, and maintaining supply and services through a combination of co-‐pack agreements and broader service agreements. However there are also often challenges around separation of customer contracts, which can be particularly challenging given the loose documentation that often supports customer contracts in the food sector.
Planned project management resource In our experience, successful sale processes require the whole range of management competencies, often focussed into a short intense period and without the distraction of the day job. These processes need to be controlled and fully resourced. They are not part-‐time activities that sit alongside the day job. The justification for resourcing projects appropriately is compelling given the potential value loss from delays in the process or losing control.
“A recent assignment involved managing 4 separate disposals simultaneously. The client had recognised the lack of internal resource and brought in additional M&A, legal and project management support. As a result, the transactions were delivered ahead of timetable with proceeds ahead of expectations.”
“Recently, I was involved in two separate auction processes, both of similar size and quality businesses. In one, the business was still fully integrated, in the other the owners had already invested in creating a stand-‐alone division. The approach of lending banks was markedly different between the two situations. Lenders were prepared to put over a turn more senior debt into the separated business, because it had eliminated the separation risk.”
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The level of complexity of this task is not driven by the size of the deal but the number of bidders in a process. If you are tempted to run an auction with a wide field of bidders, recognise that this has consequences for the project management resource.
Our audit will evaluate your planned project management resource and recommend against our findings. When we undertake the Sale Process Co-‐ordination role directly for clients, we are typically interfacing with half a dozen advisors and double that number of internal management groupings. On the advisor side, in addition to sell-‐side M&A bankers, there are normally accountants, commercial due diligence providers, lawyers and actuaries. And for each bidder there can easily be a similar number of interactions. Keeping on top of the work streams and feeding the process is key. If a project is to run to time, then the project management role becomes the lynchpin of the process.
Risk of business under-‐delivery through the process As much as there may be a temptation to present an ambitious plan, any disappointment to the forecast during the process can seriously undermine confidence in the business and potentially more importantly, management credibility. Any shortfall is also likely to delay a process as buyers will want to do more due diligence – exposing the business to further price chips and a loss of competitive tension if potential buyers drop away. This step in our audit interrogates the deliverability of the plan.
At the start of every sale process we have run, we have met with the general manager of the business, looked him/her in the eyes and asked “Have you set your monthly numbers at a 90% confidence level”. Those that have taken the advice on board, have found the sale process a lot more comfortable than those who have followed a more normal 50-‐70% confidence level on budgets, and missed a few critical numbers during a process. When that happens, there is a real risk that the buyer mentality switches from “glass half full “ to “glass half empty”. The credibility of the forecast numbers comes into question and valuations move inexorably downwards.
“During one disposal process I was involved in, management set an ambitious plan with limited support for the numbers. As the process progressed, the business missed its forecast each and every month. A more realistic reforecast, as demanded by the bidders, failed to restore their confidence and, following what were very low offers for the business, the process was terminated.”
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Management readiness Audit of the readiness of the senior Management of the business being sold is a key step. Failure to recognise the importance of the management team can be hugely value-‐destructive or fatal to a sale process. The key points to focus on are:
Management strength & credibility The management team are often one of the key assets being sold: They have the responsibility for ‘selling the vision’ and inspiring confidence in the buyers. Increased confidence will reduce the risk discount applied to the business plan and buyers need to know that the business will keep going whilst transitioning from seller to buyer. The danger for sellers is that they often want to retain good management within their own business and put poorer managers in charge of the business to be sold. If those managers are not up to the job of selling the dream then the seller risks receiving a lower multiple or the sale not proceeding. To compound the error, good managers moved away from a business being sold are often are so irritated by the lost opportunity that they leave anyway.
Management preparation Having ensured you have the right management team in place, they then need to be prepared for the sale. We will audit their readiness. Many management teams will not have been through an M&A process before. They need to understand what their role in the process is and what is expected of them. They need to be guided in pulling together the business plan and management presentation to make sure it addresses the key concerns of the likely bidders. They then need to rehearse the presentation in front of a critical audience with answers developed for all likely questions. It is not unheard of for buyers to walk away from a process because they find management un-‐convincing at the management presentations.
“Whilst supporting a private equity investor recently looking at acquiring a food business, the management team failed to demonstrate during the management presentation sufficient understanding of the business and its strategy. Their forecasts overall looked reasonable but the private equity house lost confidence in the team and pulled out, reducing the competitive tension in the process.”
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For private equity bidders, management can be a particularly critical driver of value. Some private equity funds will not consider Management Buy-‐Ins; others will see the need to bring in new management as a substantial over-‐lay of risk.
Management motivations They will want to know what it means for themselves personally in order to dedicate themselves to a process which will require a massive commitment and may, depending on who the buyer is, result in them losing their job. Sellers may not be able to provide guarantees as to what will happen to the management team but it is essential to maintain trust through the process. If the management team lose faith in the seller and hence commitment to the process, again, lower proceeds or a failed process may result.
Our audit process can, if required, evaluate proposed retention and motivational mechanisms for the management team for a successful outcome. You should recognise that a sale process will require them to make a huge personal commitment above and beyond that normally expected. The fees being paid to M&A and legal advisers will not be insignificant and there can often be a sense of injustice that the advisers are being rewarded handsomely but management are just expected to do it as part of their job.
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7. Summary This paper highlights that whilst disposal processes can be extremely challenging with many potential pitfalls, there are tools, the ‘3 Golden Rules’, available to management to ensure that they get the best possible result from a sale. Key to this though is to review and address each of these pitfalls in advance of initiating a sale process.
Our Sales Readiness Audit explores each of them in detail – it is a step by step aid to judging whether you are ready to launch your process, confirming that it is the best process for that asset and highlights where you need to put additional effort and resource to be better prepared.
The audit can be undertaken well in advance of a process, or shortly before kick-‐off. The nature of recommendations will shift depending upon the proximity of the process timetable. Naturally we would recommend a longer lead time between an audit and launch because that allows the business to make adjustments to commercial priorities and plans, but short term shifts in priorities and approach to a sales process can also lead to meaningful value improvements.
Food Strategy Associates help businesses to understand whether they are in good shape to sell a business and run a process that can, luck and flair aside, create value by
maximising the price on completion.
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About the Authors
Robert Lawson Robert Lawson is Co-‐founder of Food Strategy Associates, and is a specialist in areas of M&A process management and strategy development. Prior to setting up the business he was a senior executive at a number of food companies including Kraft Foods, United Biscuits and Premier Foods with responsibility for M&A and Strategy development and implementation. Through his career he has been involved in acquiring and selling businesses. He has led or been involved in over 30 closing transactions in the food sector.
Will Carter Will is a Co-‐founder of Food Strategy Associates, with over 30 years experience in the food industry. He has held CEO/Managing Directorships in a number of UK Food businesses; both privately owned and publicly quoted. He has led or been involved in a number of transactions on both the buy and sell side ranging from tens of millions pounds to over a billion.
Gwynfor Tyley Gwynfor Tyley is an Associate of Food Strategy Associates and is a specialist in M&A and Finance. Prior to joining Food Strategy Associates he was a consultant and interim Corporate Development Director leading business sale processes. He spent 13 years at Premier Foods, ultimately as Director of M&A and Investor Relations. He has led or been involved in 35 closing transactions in the food sector. He qualified as a Chartered Accountant with KPMG.
Contact Details
Robert Lawson Email: [email protected] Tel: +44 (0) 7810 756957 Will Carter Email: [email protected] Tel: +44 (0) 7803 850927 Gwynfor Tyley Email: [email protected] Tel: +44 (0) 7801 741940 Website: www.foodstrategy.co.uk Address: 36 Exeter Road London NW2 4SB United Kingdom
