Blogs/Vlogs

The personal factors behind a corporate transaction

18 January 2019

As Corporate Finance advisers, we frequently spend time demonstrating our transactional expertise to clients who are in the process of selling their business. However, as we talk about multiples, deals and value drivers, what we should also be asking is:

When focusing on clients planning a transaction, what are the main personal motivating factors?

As an example, for the sale of an owner managed business, there are a number of important personal motivations that we need to explore on behalf of the owners. The key to a successful disposal is understanding the personal motivations and drivers behind it, as well as the commercial parameters of what is achievable in that sector, at the time and for that company.

Life stage, emotions and experience of progressing a sale, are all important issues that should be discussed with clients when considering a sale. As an adviser, if you invest time and energy into understanding why your client is considering the sale, you are then able to frame the commercial possibilities of the proposed transaction, to address those motivations, and to pitch a solution in context. In addition, perhaps as important as the transaction itself, is to involve personal wealth and tax advisers early on in a transaction as, even at the pitch stage, these personal motivations require a considerable amount of planning.

So what matters to clients, what are they thinking about? What are they driven by?

Why did the client set up the business in the first place? Have they achieved what they set out to do? Have they achieved the goals they initially set themselves?

  • Many clients talk about the desire to set up on their own business from a young age, yet very few describe themselves as entrepreneurs and prefer to deem themselves a ‘business person’ or an ‘owner’
  • Business owners typically have stronger family bonds and often feel responsible for wider family and staff well-being. It is this type of person running a business that wishes to provide for others financially. Interestingly, this can also be a driver for sale, as well as a driver for setting up
  • Perceptions around age for selling are not borne out. Clients in their thirties cite the same reasons for selling and the same feeling following a sale, as those clients in their sixties. They often talk in terms of ‘a huge relief of pressure’.

Why at this moment in time are they considering selling?

  • Exhaustion, feeling too tired
  • Want a better quality of life
  • Have had a wake up call (health of owner/close family, divorce)
  • There is no one to inherit the business
  • They have received an offer.

In regards to the process of sales, address any preparations required - including any personal expectations or emotional highs and lows

  • Some owners step back in preparation; some work even harder in the business
  • Some have negative experiences around earn-out deals
  • For some, the process is more stressful than imagined, especially if it’s the business owners’ first time
  • Many underestimated the intensity of the due diligence process and were ill prepared
  • Some owners habitually comment on the guilt they feel by not divulging details to their staff during the process, and
  • sometimes they feel dishonest, conflicted and stretched during a process, at the end of which they feel exhausted, yet relieved.

After a sale, how would clients describe their feelings and experiences?

  • Relief, ‘a weight lifted from our shoulders’ (majority); or
  • A loss of self-identity that was linked to the business (minority).

After completing any transaction, what helpful tips or pieces of advice would clients share with other business owners?

  • Seek specialist and detailed advice – pick the right adviser
  • Get the right deal, not necessarily the highest price
  • Take your time and plan a transaction carefully
  • Look after yourself during the process – manage your stress by staying healthy.

By exploring these matters over a number of meetings, advisers will ultimately understand their clients’ needs better and ensure they can achieve the best possible transaction for them.

At UHY Hacker Young, we work closely alongside related professional disciplines, both internal and external, to provide a more holistic lead advisory service around a planned corporate finance transaction.

For more information, please do not hesitate to contact me or visit our Corporate Finance page.

Alternatively, contact your usual UHY adviser or fill out our contact form.

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