Frequently Asked Questions

FAQs About Selling a Business

What types of technology business do Prism work with?

We aim to cover all technology-based businesses, with the exception of biotech (eg. drug discovery).

 

We work a lot with software businesses (especially B2B) and IT services, but we also have experience in environmental and scientific instrumentation, online retail and manufacturing technologies to name a few.

What size of businesses does Prism typically work with when selling?

Typically, we work on transactions involving the sale or acquisition of businesses within the £1m to £20m turnover range (though the vendor or acquirer can be substantially larger than this).

I would like to sell my business, what do I need to do?

Deciding to sell your business is probably one of the biggest decisions you are going to make in your life. It needs careful consideration and a robust plan to ensure you can confidently work towards achieving your objectives.

 

The first thing is to get some professional and trusted advice. Your advisor will assess your business and your personal objectives to help you create a plan. They will walk you through the elements to consider including how and where you can build additional value to maximise your return.

 

Prism comment:
The Prism Directors always like to get to know you and understand your drivers and end goals. They regularly hold virtual 1-to-1 Clinics that provide the opportunity for a confidential and no obligation chat about your specific circumstances. This is a very good starting point that allows you to meet Prism and discuss your business and your aspirations. These sessions allow Prism to outline the best next steps for you. To request your 1-to-1, please click here or you can contact Prism Directors Peter Watson or Robert Fiske directly to start the process.

What things should I consider when choosing an advisor?

You should first establish whether you need a specialist or a generalist. There are many corporate brokers that are generalists – covering a wide span of business sectors whilst a more select group are focussed on specific ones. Consider the nature of your business and if you feel it would benefit from a greater understanding of your activities and market

 

You should also decide what level of interaction you require as this will determine the type of advisor you choose. Some manage large volumes of deals and have more rigid processes that they follow, whilst others are more selective, managing fewer deals and can therefore provide a more tailored and personal approach.

 

You will be communicating with your advisors on a regular basis, both pre-sale and throughout the process itself, so it is important that you establish a strong working relationship from the start. You must also place a high level of trust in them to deliver to your expectations.

 

Prism comment:

Prism specialises in selling and acquiring Technology sector companies – and has done for many years. We understand the value drivers, know the market, and have experience of a wide range of technologies and associated services. We are not a volume player and treat every client’s business as a unique entity, tailoring our approach accordingly to ensure we gain the best outcome to meet their objectives. Our approach is very personal – this is highly valued by our clients.

When is a good time to sell a business?

Buyers are interested in the future. In our experience many business owners wait until they can post some excellent results but seem to place less importance upon the future prospects. Invariably the best time to sell is when you can project a really positive future. There is of course a balance between historic performance and future potential but do not be blinded by the former – and remember, the latter must be credible, not fanciful!

 

Don’t ignore the personal side too. Do you have a specific timescale you would like to meet? It is important to ensure you are still feeling good about the business and have not reached a point where you are either losing interest in it or it is becoming a burden to you. If that is the case, your business performance may suffer. Many owners leave it too late and often start considering a sale only after these factors start to become an issue. It is far better to sell when carrying on is a realistic option, rather than find yourself dealing with a sale long past the point at which you wanted to be out.

 

Prism comment:

Prism will put your personal drivers at the core, guiding and advising you on the best ways to achieve your objectives. A fundamental part of this includes getting the timing right. 

How do I know how much my business is worth?

The old adage remains true… a business is worth what someone will pay for it!  Furthermore, it is invariably the case that it will be worth different amounts to different buyers.

 

There is no precise formula to business valuation but whilst no one can say exactly what a business is worth before going to market, we believe we have a better handle on it than most – particularly in the Tech sector.

 

Ultimately the market decides, but the key is to prepare the business correctly and then create the right market. By the way, we would strongly advise you to take published multiples with a pinch of salt unless you really know the businesses involved and the specific transaction in detail. Even then, you should always question the degree to which this information is applicable to you and your business.

 

Prism comment:

Prism has worked specifically in the Tech sector for many years. We constantly monitor many different aspects of it (not least, M&A activity) and are well-placed to advise on market conditions and assess valuation expectations. There are likely to be a number of areas where we can help increase value prior to going to market.

How can I increase the value of my business?

Of course, a good business is worth more than a bad business, so any actions which strengthen the business should provide value in the longer term. In the short-term however, some actions may not actually add to the sale value. Deciding which aspects to fix and which to accept, is key. You should seek advice from your advisors on this as they will understand this from an M&A perspective.

 

Prism comment:

As mentioned in the previous question, there are a number of actions that can be taken to increase value. This could be during sale preparation or as the deal progresses. The Prism team ensures every opportunity to build value is explored and discussed in full with clients. We then focus on the activities that are going to give the best return for the amount of effort and commitment needed.

How long does it take to sell a business?

A good guide is to allow a period of 12 months from engaging an advisor to completion. It can of course be shorter or longer depending on market conditions and the actions that are needed to enhance value prior to going to market.

 

Prism comment:

We encourage business owners to engage with the Prism team at the earliest opportunity to allow us the time to work together to enhance value. Approximately 12 months is typical however we have worked with clients over a number of years on planned activities to enhance value in order to achieve a desired outcome.

How much of my time will the process take?

Involvement will tend to be higher at the start of the process as we amass information in order to fully understand your business and prepare the detailed documentation. It will scale up again during the due diligence phase once an offer has been accepted. Much of the work such as preparing documentation, identifying, qualifying and contacting targets will be performed by your advisors with regular progress updates.

 

Prism comment:

We understand time and other constraints associated with running a business and try to take as much of the burden away from you as possible. It is essential that you do not take your eye off the proverbial ball during the process, so we strive to leave you to focus on running the business.

What are the benefits of using an advisor?

If you think education is expensive try ignorance!

 

Much of the value that an advisor provides is the experience gained over many transactions, ensuring that you can avoid making key mistakes through ignorance. It is all about knowledge, experience and judgment – and never forget, the devil is always in the detail.

 

An advisor should be much more than just a matchmaker. Do not underestimate the work that goes into a successful sale process. Unless you have extensive prior experience – and the necessary resources – it is unlikely you will be able juggle all aspect including identifying targets, making approaches, managing multiple parties, negotiating detailed terms and much more besides.

 

Prism comment:

Not only can we apply the necessary resources to handle all the research and manage numerous communication streams, we also know the tricks of the trade. We have facilitated numerous types of deals and experienced a wide range of scenarios throughout. We often see things coming before they actually emerge, thus are prepared and able to handle them in an appropriate manner. This is where experience and judgment are so important.

I have been approached by a potential acquirer, what are my next steps?

Seek professional advice at an early stage. Remember, all that glitters is not gold and it is important to properly assess the motivations and suitability of the prospective acquirer. There are times when an approach ‘out of the blue’ is the right way to proceed, but many times value can be left on the table if other options are not explored – or time simply wasted.

 

Prism comment:

The Prism team can guide you through the merits of the buyer and critically assess their offer. We would also look at timing – i.e. is it right to entertain a sale right now? We would also consider whether to proceed with one party or open up a competitive process.

Will I need to continue working at the company post-sale?

This very much depends on your importance to the business, the structure of the agreed deal and your personal preferences. Can the business continue to operate well without your input/guidance? If you have a capable second tier management team then it is possible that any post-sale involvement can be limited to a consultancy type arrangement at most.

 

Prism comment:

During our initial discussions we will talk about your ideal goals and aspirations. This will include your desire to continue working or not. Having this information allows us to structure the deal to best achieve your goals.

How does Prism find potential buyers?

There are two principal routes to finding potential buyers, both of which are important. First the Prism team undertakes targeted research to establish a list of buyers that have a strategic fit, money(!) and ideally a track record of acquisition. We make use of extensive in-house and external databases to help identify targets, and also use the knowledge and insight gained from previous deal activity.

 

The second route is via our Corporate Finance network. Many acquirers will have engaged their own corporate advisors and we engage with them, often unearthing prospects that simply could not be found by research alone.

 

Prism comment:

During our initial discussions we will talk about your ideal goals and aspirations. This will include your desire to continue working or not. Having this information allows us to structure the deal to best achieve your goals.

What other advisors will I need?

You will need legal advice and may also need some tax advice.

 

Prism comment:

Prism works with a variety of other professional advisors and can make appropriate recommendations and introductions, where required.

When do I tell my staff?

The choice of if and when to inform your members of staff depends on a number of factors specific to each assignment and business. Remember, ultimately staff will translate any information gleaned about a sale into “What’s in it for me?”, and if you are unable to provide sufficient detail for them to assess this, it may only engender worry, which could have a detrimental effect.

 

Ideally, it will be possible (and probably helpful) to inform some of the key management. However, from experience, there are many things to consider before you do this.

 

Prism comment:

This is one where there is no universally right and wrong approach. It will depend on a number of factors specific to your situation. Before mentioning the sale to any staff we strongly encourage you to discuss it with us. We will have a good insight into your situation and can advise on the best way to approach the matter.

How can I value our Technology/IP?

Assessing the potential value of any Technology/IP is a key part of business valuation. In some cases, the technology will be wound up into the cashflow elements of the business, in others it may sit as a discrete element. Understanding the technology and its market potential is key, as is the degree of protection available or required.

 

Prism comment:

Prism has much experience of this and will work through these aspects in detail to help determine its value.

I’ve heard earn-outs frequently don’t pay out, is this true?

This can be the case if you do not carefully consider the structure and mechanism of any earn-out. Structure should ideally only be used where you need to offset risk. This is a key area where your advisors will bring potentially significant value.

If you have any questions relating to plans to sell your business please contact us, we will be happy to help.

FAQs About Buying a Business

I want to buy a business, where do I start?

Talk to an advisor. There are so many aspects to consider and explore to ensure acquisition is right and that it will ultimately achieve your strategic aspirations.

 

Prism comment:
The first thing the Prism team does is explore the rationale behind the decision to acquire, and we test this rigorously. This includes assessing the management ability to undertake and absorb an acquisition, as well as the availability of funding. It may initially feel as if we are trying to find reasons not to acquire, but if the rationale can survive this scrutiny, it will avoid time being wasted in the future.

I have read research that states most acquisitions don’t add value, is that the case?

Whilst it is true that there have been some high profile acquisitions where this is clearly the case, we absolutely refute that this is the inevitable outcome. Acquisition is a well-established method of achieving economies of scale and introducing new technologies, markets and/or skills. However, the success relies upon clearly understanding your acquisition objectives and developing a coherent strategy.

How will a corporate advisor help with business acquisition?

The aim of an advisor is to increase the likelihood of success in finding suitable targets and negotiating appropriate deals.

 

The advisor should initially clarify and challenge the acquisition brief, then undertake extensive research to identify and qualify potential targets. They will make approaches to targets, manage information flows (both before and during the due diligence phase) and advise on, and negotiate offer structures. The aim is to increase the chances of a successful acquisition and, at the same time, reduce the risks to the buyer. It is inevitable that there will be some residual risk and the advisor should be well-placed to walk you through and assess these risks.

 

Having said all this, your advisor must also be bold enough to dissuade you from an inappropriate acquisition!

How long does a typical business acquisition take?

Overall, the timescale is similar to a sale process. A good guide is 12 months after engaging an advisor to completing an acquisition but, this timeframe can be shortened. Once a target is identified, the process can be completed within 3 months.

I’m worried that embarking on an acquisition strategy may pull me away from my existing business, should I be?

Having the management bandwidth to undertake an acquisition is an important factor. Engaging an advisor will certainly reduce the time needed from you, nonetheless, acquisition is a time-consuming activity and you will need to kiss a few frogs before you find your prince charming!

How important is it to have funding in place before embarking on an acquisition?

The better you can demonstrate the funding of an acquisition, the more serious you will be taken by potential vendors. However, a letter from a funder offering support in outline of future funding is not very reliable evidence that they will support an acquisition. It goes without saying, if you can provide evidence of cash funds it would be much more convincing.

 

Recognition will be given where there is an existing business with substantial assets/cash flow and therefore have a recognisable ability to raise funds.

 

Prism comment:

It is possible to acquire a business with little funding, but the chances of success are much lower and you may be left with a less desirable business. Strengthening your evidence of funding capability is a key element.

I’ve got some experience in previous acquisitions, how can Prism help me?

The Prism acquisition service is ‘customisable’. For some we will be involved heavily in identifying and qualifying targets. For others we may only be involved once a target has been identified. We will work with you to ensure the most effective use of your and our time to meet your objectives.

If you have any questions relating to your own business acquisition plans please contact us, we will be happy to help.


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