HowToSellYourBusiness
BY
KaloianKirilov
ISBN9789356106796©KaloianKirilov2022PublishedinIndia2022byPencilContributors:Co-Author:ProfessorSanjayRoutEditor:ProfessorPrangyanBiswalAbrandofOnePointSixTechnologiesPvt.Ltd.123,BuildingJ2,ShramSevaPremises,WadalaTruckTerminal,Wadala(E)Mumbai400037,Maharashtra,INDIAEconnect@thepencilapp.comWwww.thepencilapp.comAllrightsreservedworldwideNopartofthispublicationmaybereproduced,storedinorintroducedintoaretrievalsystem,ortransmitted,inanyform,orbyanymeans(electronic,mechanical,photocopying,recordingorotherwise),withoutthepriorwrittenpermissionofthePublisher.Anypersonwhocommitsanunauthorizedactinrelationtothispublicationcanbeliabletocriminalprosecutionandcivilclaimsfordamages.
DISCLAIMER:TheopinionsexpressedinthisbookarethoseoftheauthorsanddonotpurporttoreflecttheviewsofthePublisher.
Authorbiography
FirstAuthorBio:
KaloianKirilov
Kaloian(Kal)Kirilov isanentrepreneurwith20yearsofexperience.HecompletedhisMBAwithfullscholarshipfromGVSU,USA,whereheworkedfortheSmallBusinessdevelopmentcenter(SBDC)andalsoforMerrillLynch.AfterhisreturntoBulgaria,heworkedforawhileinabankandafterthatin2005setupanownM&Aadvisoryfirm, SynergyGroup. Mr.KirilovparticipatedinalotofM&Adealsinhis15yearsofconsultingexperience.Healsodidmanagementconsultingandstrategyprojectsforhisclients.Thelastfiveyears KalKirilov developedtwoownstartupssoheknowwhatitistobeanentrepreneurfromfirst-handexperience.Mr.Kirilovisalsoanauthoroftwobooksaboutstartupswhichwerepublishedinseveralcountriesandabookaboutsuccessionplanning.
SecondAuthorBio:
ProfessorSanjayRout
ProfessorDoctorSanjayKumarRoutisanInternationalResearcher,Innovator,Speaker,Author,LegalExpert,Coach,Editor,Reviewer,JournalistandPolicyExpert,Coach.HeiswellknownandhighlyrespecteddignitaryinthefieldofResearchDevelopment&InnovationworkinginthemajordomainofDevelopmentManagement,PolicyResearch,PublicPolicy,Business,Economics,Finance,Law,SocialScience,Education,TechnologyandotherFields.Currently,heisworkingasChancellorofMVUniversity(Mexico),ResearchDirectorofGIBUUniversity(Liberia),EducationalExecutiveCouncilmemberofRKUUniversity,CEOofInnovationSolutionLab,andDirectorofISLPublications.Hehadworkedwithvariousnationalandinternationalorganizationsinvariousleadershipcapacities.Prof.(Dr.)SanjayKumarRouthasbeenadistinguishedResearcher,StartupMentorInnovator,whoconsistentlydemonstrateshisresearchworkexcellenceinthefieldofResearch&development,Innovationswithgreaterefficiency,productivity,andqualityInnovations&researchmodels.,Health,Governance,Technology,BusinessManagement&Academics.HehadreceivedmanyNational/InternationalFellowship&AwardsinseveralcategoriesforhisoutstandingworkinInnovation,Management,Research,Sustainability,andSocialDevelopment.HehadparticipatedvariousNational/internationalSummits/Conclave/Seminar/Workshop.Hehadpublished100+researchpapers&books.
ForhisworkhehadbeenHonoredbymanyorganizationas:
GlobalInfluencerinHigherEducationAwardbyCED,GIFT&MSME
Top50GlobalData&SecurityFutureThoughtLeaderbyThinkers360
InternationalAOVleadershipAwardforResearch&InnovationField
World’sBest50FutureBusiness&Innovationstart-upThoughtLeader-2020byThinkers360
PillarsofIndiaawardbyESNResearch
Top50GlobalThoughtLeaders&InfluencersonCOVID-19BusinessImpactbyThinkers360
Top50GlobalThoughtLeaders&InfluencersonPublicRelationbyThinkers360
HonoredasLiteraryLieutenantfromStoryMirror
Start-upMentorfromStartupWorld
BestInnovatorMUGUInternationalFoundation
OutstandingGlobalScientist(Innovation,Author,Policy&FuturisticSpeaker)byNCCHWO
BestAuthorAwardfromStoryMirror
BestYoungScientistAwardfromGlobalEducationandCorporateLeadershipAwards
OutstandingResearcherAwardfromGreenThinkerZ
IndiraGandhiGoldMedalAwardbyGEPRA
BestGuruAwardfromGECL
SpeakeronPublicHealthatAIDSCONSummitbyPostgraduateInstituteofMedicalEducationandResearch
GlobalSpeakeronResearchDevelopmentatWORM-2020InternationalSummitbyEudoxiaPvt.Ltd
BestSpeakeronArtificialIntelligenceatBhartiyaVidyapeeth
Hisacademiccredentialscontaindifferentachievementsfromrenowneduniversities/institutionslike—NIT,IIM,IIT,UniversityofPennsylvanian,andUniversityofWashington,ImperialCollegeLondon,JohnHopkinsUniversity&others.IncludingSeveralachievements,heholds,Threebachelors,Threemasters,threePh.D.&D.Sc.(Medicine),D.Litt(Law)inhisacademiccareer.HeisanglobalcertifiedprofessionalfrominternationalacclaimedorganizationlikeGoogle,WHO,BCG,WorldBank,Amazon,UNICEF,SAS,UN,EuropeanUnion,IBM,AsianDevelopmentBank,FAO,Cisco,IRCC,GoI,UNDP&others.Andhehadworkedforvariousglobalprojectsinmultiplethematicareas.
AB
Contents
WhenandWhytoSell
StepsintheSellProcessofaCompany
PreparationoftheCompanyforaSell
Buyersofyourbusiness
Howmuchisthevalueofmycompany
Negotiationsandstructuringofthedeal
DueDiligence
Closingthedeal
Afterclosing–integrationofthecompany
Buyingabusiness
WhatshouldIdowiththemoney
LastAdvice
Epigraph
“Howtosellyourbusiness?”isabook,whichrevealsallthestagesthroughwhichanownerhastogothroughwhenhedecidestofindabuyerforhisbusiness.Theemphasisisonon-goingbusiness.Notonsellingassets.Thebookiswrittenbasedonover15years’experienceoftheauthorinthefieldofmergersandacquisitions.Asaresultthebookisnotsomuchatextbookonthesubjectbutitisfullofpracticalcaseswhicheveryentrepreneurmightencounter.ThebookiswrittenbyMr.KaloianKirilov&ProfessorSanjayRoutandPublihedbyISLPublications.
Youwillnotfindinformationandadvicehowthebigdeals.whichthepresswritesabout,areconducted.Insteadthedescribedstagesandadvicearetypicalforeveryownerofafamilybusiness.Thismightbeacompanywith5milldollarssalesbutitcanbeacompanywith200milldollarssales.Thekeyishowthebusinessismanaged.ThiswilldeterminethespecificsoftheM&Aprocess.
“Howtosellyourbusiness”willhelpyounotonlytosellyourcompanybutthereisalsoaspecialsectiononbuyingotherbusiness.Ifafamilyownerdecidestotakesuchstepitcanbecostlyandthat’swhyitwillbewisetobepreparedforsuchimportantstep.ThebookwillnotmakeyouanM&Aexpertbutwillgiveyouenoughfoundationsothatyoucansavealotofmoneyfromconsultantsandalsofeelcomfortableinsuchtalks.
Foreword
ThebookiswrittenbyMr.KaloianKirilov&ProfessorSanjayRoutandEditedbyProfessorPrangyanBiswalPublishedbyISLPublications,India.Allrightsreserved.Anyunauthorizedreprintoruseofthismaterialisprohibited.Nopartofthisbookmaybereproducedortransmittedinanyformorbyanymeans,electronicormechanical,includingphotocopying,recording,orbyanyinformationstorageandretrievalsystemwithoutexpresswrotepermissionfromtheauthor/publisher.Pleasedonotparticipateinorencouragepiracyofcopyrightedmaterialsinviolationoftheauthor’srights.Purchaseonlyauthorizededitions.
Preface
“Howtosellyourbusiness?”isabook,whichrevealsallthestagesthroughwhichanownerhastogothroughwhenhedecidestofindabuyerforhisbusiness.Theemphasisisonon-goingbusiness.Notonsellingassets.Thebookiswrittenbasedonover15years’experienceoftheauthorinthefieldofmergersandacquisitions.Asaresultthebookisnotsomuchatextbookonthesubjectbutitisfullofpracticalcaseswhicheveryentrepreneurmightencounter.ThebookiswrittenbyMr.KaloianKirilov&ProfessorSanjayRoutandPublihedbyISLPublications.
Youwillnotfindinformationandadvicehowthebigdeals.whichthepresswritesabout,areconducted.Insteadthedescribedstagesandadvicearetypicalforeveryownerofafamilybusiness.Thismightbeacompanywith5milldollarssalesbutitcanbeacompanywith200milldollarssales.Thekeyishowthebusinessismanaged.ThiswilldeterminethespecificsoftheM&Aprocess.
“Howtosellyourbusiness”willhelpyounotonlytosellyourcompanybutthereisalsoaspecialsectiononbuyingotherbusiness.Ifafamilyownerdecidestotakesuchstepitcanbecostlyandthat’swhyitwillbewisetobepreparedforsuchimportantstep.ThebookwillnotmakeyouanM&Aexpertbutwillgiveyouenoughfoundationsothatyoucansavealotofmoneyfromconsultantsandalsofeelcomfortableinsuchtalks.
Themaintopicswhicharecoveredinthebookare:
1.Whenandwhytosellyourbusiness?
2.Stepsintheprocessofsellingacompany
3.Typesofpotentialbuyers
4.Howtopreparemycompanyforasale?
5.Whatisthevalueofmybusiness?
6.Structuringthedeal
7.Duediligence
8.Integrationofanewcompany
9.Howtobuyanewbusiness
10.Whattodowiththemoneyfromthesaleofthebusiness?
Acknowledgements
Werecorddeepsenseofgratitudeformyrespectedallour globalMentor’s,FriendandInnovatorsforallconstantdirection,helpfuldiscussionandvaluablesuggestionsforwritingthisbook.Duetoall valuablesuggestionsandregularencouragement.We wouldbeabletocompletethisworkandfulfillmentofour dream.Allour globalfriendshelpedus enoughduringtheentireprojectperiodlikeatorchinpitchdarkness.We shallremainhighlyindebtedtoallthroughoutour life.We acknowledgeour deepestsenseofgratitudetoour learnedparents,whohasbeenthroughoutasourceofInspirationtous whilewritingthebook.Whohelpedus atvariousstagesofthewriting directlyorindirectly.Theyalsoenlightenedus tofollowthepathofduty.Specialthankstomychildrenandspouseandalmightyfortheirsupportinourwork.
Introduction
In2003IcamebackfromtheUSAwhereIcompletedmyMBAwithfullscholarship.IalsoworkedtheretwoyearsfortheSmallBusinessDevelopmentCenteranddidaMBAinternshipatMerrillLynch.WhenIcamebackIwantedtoworksomecoolstufflikeinvestmentbankingbuttherewerenotsuchopportunitiesinBulgariaabout20yearsago.AftercoupleyearsworkingforsomebanksinthecorporatebankingdepartmentandatasmallBulgarianboutiquefinancialhouseIfoundedmyowncompanyforMergersandAcquisitions–SynergyGroup.Itwastheendof2005.TimepassedbyquicklyandnowIcanseethatIhaveworkedintheM&Afieldfor15years.DuringalltheseyearsIhavetalkedtoalotofBulgarianentrepreneurs.Mostofthemdon’trealizehowcomplextheprocessofsellingacompanyisortheprocessofattractinganinstitutionalinvestor.Veryfewofthemhavesomeknowledgeonthesubject.Thisissomethingnormalbecausewehavehadprivatebusinessonlythelast30years.Tosellabusinessisanactivitywhichtakesplaceveryseldominyourprofessionallifeandveryoftenitisaone-timeevent.That’swhyitisunderstandablethatwhenapersonendsupinasimilarsituationtriestofindsomebodywhohasalreadygonethroughsimilarprocessandtoaskhim/herforadvice.Theotheroptionistoimproviseandtohopeyoutaketherightsteps.Ihavediscussedwithalotofownersthattheprocessofsellingtheirbusinesshasnothingtodowithsellingtheirapartment.InBulgaria,untilthatmomenttherewasnosummarizedinformationonthetopicIdecidedtowriteapracticalguide,whichrevealsindetailsthevariousstepsintheprocessofsellingacompany.SinceSynergyGroupisaBulgarianM&AboutiquemostofourdealsarerelatedtoworkingwithBulgarianentrepreneurs.Wealsohaveworkedonsomeprojectsforforeigncompaniesbutthebigdealswithmultinationalscompanieswhichgetinthespotlightofthemediawerenotourfocus.Themainreasonissimple.ThedecisionsforanyM&AdealistakenataHQlevelsoitishardforalocalboutiquefirmtoparticipateinsuchdeals.Asaresult,forgoodorforbad,thisallowedustogainavaluableexperiencewiththedeals,whicharetypicalforthesmallandmediumcompanies.ActuallymostofthedealswehaveworkedonandclosedareconsideredbiggerforBulgaria.Theyfallintherangeof3-10mileurosdeals.Howevertheprocessandtheprinciplesareverysimilarevenifyouhaveasmallerbusiness.Forexampleanautobodyshoporarestaurant.
ThereareseveralreasonswhywehavechosentoworkwithbiggercompaniesinBulgaria.AgainthistermisarelativebecauseofthesizeofBulgaria.Hereacompanywhichhassalesof15milleurosand2milleurosEBITDAisconsideredmediumandevenbig.IfyouseeitthroughthecriteriaoftheEuropeanUniondefinitionthanthesearesmallcompanies.
ThemainreasonwhyweconcentratedonbiggercompaniesisthatthereissomemisunderstandinginmostownersabouttheM&Aprocessitself.Mostpeoplebelievethatacompanyissoldbecauseithassomefinancialdifficultiesoritisclosetobankruptcy.Atthatmomenttheownerhasstartedtolookforoptionshowtosavewhatisleftfromthebusiness.Insuchcaseswecantalkaboutsellingassetsbutnotforsellingabusiness.Thetermswhichtheownerscanreceiveinsuchsituationarenotsatisfactoryforthem.Thatwrongperceptionrequiresalsoabigconfidentialitywhenweworkonthedeals.ThisisOKandisanormalpracticeallovertheworldwhenwearetalkingaboutmergersandacquisitions.Itprotectsalltheemployeesandtheclientsofthefirm.ButfortheBulgarianownersitisevenmuchmorecrucialbecause.Theydon’twanttheoutsideplayerstostartthinkingthathehasfinancialproblemsbecausetherewasaninfoleakthatheishavingtalkswithinvestors.SometimesweendupinsituationswhereourteamwasnotpresentedasaM&Ateamtotheexecutivesandtheemployeesofthefirmbutasacommercialpartnerwhichisnegotiatingatradingdeal.
Weareworkinginthedirectiontochangethiswrongperceptionandoneofthegoalsofthebookistomakepeoplemoreinformedabouttheprocessofmergersandacquisitions.Whenitisusedandwhy.Atthesametimeweunderstandtheirconcernsaboutconfidentialityandthat’swhyinthepracticalexamplesIwilluseIwillnotmentionspecificcompanynames.Iwillmakeexceptiononlyforcompanieswhichalreadydon’texistortheinformationispublic.
Whomisthisbookfor?
InorderthebooktobebeneficialtoyouIwillmakesomeclarificationswhothisbookisforandhowitcanbeused.ThebookismainlyforownersofsmallandmediumbusinessesanddefinitelyIhaveinmindprivatecompanies.Someofthediscussedstepscanbeusedalsoforpubliccompaniesbutbecauseofthespecificregulationsofthepubliccompaniestheprocessisalittlebitdifferent.Thebookcanalsobeusefulforexecutivesatthebigmultinationalcompanies,whichcanbepartofasimilardeal.Whenanownerdecides,forwhateverreasonstosellhiscompany,histopexecutivesalsoareforcedtoparticipateactivelyinthedeal.That’swhyitwillbegoodiftheyareafamiliarwithsuchaprocess.Lastbutnotleastthebookcanbeusefulalsotoallstudentsorpeoplewhoareinterestedandwanttoworkinthefieldofmergersandacquisitions.
Actuallywhenwearetalkingformergersandacquisitionsthevarietyofdealsishugeandnotalwayswehavetheclassiccasewhenanownersells100%ofhisbusiness.Theownercanalsosellastaketoafinancialinvestorsothatthebusinesscangrowmuchfaster.Itispossiblethatthecompanycanhaveseveralownersandsomeofthemtochangetheirplansandtowanttoretireorexitfromthebusiness.Theycanselltheirstaketotheothershareholdersortonewshareholders.Thecompanyalsocanformanewjointventureandofcoursewhynottheownertowanttogrownotorganicallyandtobuyacompetitor.
VeryoftenwhenthepressismakingsomereviewoftheM&Amarkettheyincludevarioustypesofdeals.Theycanincludedealswithbigrealestatesprojects.Forexampleofficebuilding,hotels,logisticsoffices,etc.Althoughthesearealsobusinessandhavecashflowsthattypesofdealsisalittlebitdifferentandthebuyersarealsodifferent.Thedealwithrenewableenergyproject,solarandwind,arealsoincludedinthelistofM&Adeals.Myexperienceisnotsomuchwiththattypeofdealsandthat’swhymyfocuswillnotbemuchonthem.
ThebookisnotwrittenforprofessionalinvestorsandIwillnotgetintotechnicaldetailsandcomplexfinancialanalysis.Ontheothersideifyouarereadingthebookitwillbehelpfulifyouhavesomebasicbusinessknowledge.Forexamplewhatisanasset,liabilityoracashflowandothersimilarterms.Ibelievethatifyouareanownerofabusinessmostprobablyyouarefamiliarwiththemanditwon’tbeanissueforyou.
TheotherreasontowritethebookisatthatasaresultofCovid-19issuetheworldendupinanewfinancialcrisisin2020.Becauseofthattherewillbesignificantincreaseofthedeals.Unfortunatelymostofthedealswillbeforassetsnotforwholebusinessbutevenifthisisthecaseitwillbegoodifyouareprepared.Ofcourseanydealbetweenprivatecompaniescantakeplaceanywayandwithoutanypreparationorstrategy.IfthetwopartiesareOKwiththeapproachandthetermsthenwewillhaveanexecuteddeal.Veryoftentheapproachwhenwearetalkingtoownersofsmallandmediumsizedcompaniesisthattheydon’twanttoinitiateanactiveM&Aprocess.Theyprefertheplaytheroleof“theunsolicitedparty”.Iwanttosellmybusinessbutwillnotannounceitandwillnotbetheactiveparty.IfsomebodycomestomeandoffermetobuymybusinessIwillsitdownandwilltalktohim.IfIdothisthenIwillnotbeperceivedasadesperatepersonandwillbeabletoaskforahigherprice.Thelogicisthatinsuchsituationtheownerwillaskfor10eurosforhisbusinessandthat’sthesituation.Noroomfordiscussion.Therewillbenorationalexplanationorjustificationwhyhewants10Euro.Thisisjusthisdesire.Attheendtheownersays:“Ididn’tinvitethebuyersoIdon’thavetojustifyit.Ifhewantsmybusinesshehastogiveme10eurosortherewillbenodeal”.Thereisnothingbadwithsuchapproachbutitisnotprofessional.Itlookslikethatyougotothegrocerymarkettobuycherriesandyouseeanoldladywhowants10eurosforhercherries.Ifyouaskher;“Whydoyouwant10euro?”shewilltellyou:“Becausethat’showIhavedecided”.HoweverintheM&Ayoudon’tsellcherriesbutacomplexbusiness.Ifyoucanexplaintothebuyerthatyouwant10eurosforyourcherriesbecausethefertilizerscostyou3euros,thewater1euros,transport1euros,andthelabor4eurosyouwillsoundasapersonwhoknowswhatheisdoing.Inotherwordstheinvestorswon’tperceiveyouasacraftsmanasIliketocalltheself-madeentrepreneurswithoutputtinganynegativeconnotationintheword.Youwillbuildaperceptionintheeyesoftheinvestorthatyouknowwhatyouaredoing.Thiswaythepotentialrisksforthebuyerwilldiminishandyouwillbeabletoreachbettertermsforyourdeal.Thisbookwillhelpyoutobebetterinformedbutdon’texpecttogiveyouallanswers.Eachcompanyisuniqueandthefactthatsomethinghappenedthatwaywiththedealofyourcompetitordoesn’tmeanthatwillbeexactlythesamewithyourdeal.Youknowthatitishardtofindtwoidenticalapartmentsinaapartmentbuilding.Whatabouttwocomplexbusinesses?Thebiggerthecompanythemorecomplexthedealwillbe.Thisisalsonotmathbecausethenthedealswillbedonebycomputersbutwhoeverisbetterinformedwillhaveanadvantage.Haven’tyouthoughtwhythebiggestcompaniesalwaysuseconsultantswhentheyarebuyingorsellingabusiness.Theyhaveresources,havedonemanydeals,havethepreparationanddespiteeverythingwhenCoca-Colaismakingadealitalwaysusesconsultantsorinvestmentbankers.AtthesametimeJohnwhohasasmallproductionforjuicesdoesn’tuseit.Hewants10eurosforhisbusinessandifsomebodygivesthemtohimtherewillbeadeal.IfnobodyoffershimtheaskedpricehehopesthatCocaColawon’tforcehimtogooutofbusinessbecausetheyhaveeconomyofscaleandallnecessaryresources.Ifthathappenthenhewillhavetosellassetsatalaterstagebecausenotmuchbusinesswillbeleft.Itisalittlebitstrangesuchbehavior,isn’tit?HoweverthatistherealityandnotonlyinEasternEuropewhereIcomefrom.
Yes,I,asaM&AadvisorIamsubjectiveinmakingsuchstatementbutfrommy15yearsofpracticeinthefieldIseethatitismucheasiertoworkwithpeoplewhoareinformedintheprocess.Theyknowwhatitisthebenefittofollowsomeadvice.Whatwillbetheconsequencesofsomeoftheiractions,etc.Ihopethisbookalsohelpstheminthatprocessandtogetanexpertiseinthefield.TheentrepreneursshouldunderstandthattheM&AconsultantsarenotbrokersandtheiraddedvalueisnotthefactthattheycanfindJohnwhowillbuyyourbusiness.Actuallyunlikethebrokers,theM&Aconsultantshavetositdownononesideofthetableandtohelpandadviceonlyonepartyintheprocess.Unliketherealestatebrokerswhoexpecttogetcommissionfrombothsidesbecausetheymatchedthebuyerandtheseller.FortheroleoftheM&Aconsultantswilltalkinmoredetailslaterinthebook.
Howisthebookorganized?
Thewholebookisorganizedasapracticalguidewith12chapterswhichcoverallstepsintheprocessofsellingorbuyingacompany.Westartwiththequestionwhenandwhytosell?Thepreparationofsuchprocess,thenwegoanddiscusswhomightbethevarioustypesofpotentialbuyersofyourbusiness,howtostructureandnegotiateyourdeal,talkaboutthecomplexword“duediligence”whicheverybodyistalkingaboutandweendupwiththeclosingofthedeal.ItisnotlessimportantalsowhathappenswiththecompanyafterthedealissignedbecausethisisthemomentwhenmostdealsintheM&Aprocessturnintounsuccessfulprojects.Itisalsoimportanttodiscusswhatyoucandowhenyoucashoutandyouendupwithnobusinessandonebagfullofmoneyinyourhand.Ialsoincludedawholechapterforthepeoplewhowantstogrownotorganicallyandarereadytobuyanotherbusiness.Eithertoexpandtheircurrentbusinessorjusttodiversifyitwithothersectors.Someofthestepsareidenticalwiththeonesinthesellingprocessbuttherearesomespecifics.Someentrepreneursareintimidatetobuyanotherbusinessbutveryoftenthismightbethebetterstrategycomparedtostartingabusinessfromscratch.Thisapplieseventoabiggerextendifyouwanttosteponforeignmarkets.AlotofownersinEasternEuropeareintimidatedtobuybusinessesinWesternEuropeorintheUSAbuttherealityisthatinthedevelopedmarketstheycanevensignbetterdealsthaninEasternEurope.
AtthemomenttherearenotmanypracticalguidesoutthereonthemarketandIwilltry,asmuchtheconfidentialityclausesallowme,toprepareyouforsuchaprocessifyouaretheownerofasmallormediumbusiness.
Chapter2
WhenandWhytosell?
WhenandWhytoSell
Whentosell?
Anyconsultantcanhelpyouintheprocessofsellingorbuyingacompany.That’shisexpertiseandheknowsthestepsindetails.Thereissomethingforwhichnobodycanhelpyouandyouhavetotakethedecisionbyyourself.Thisisthedecisionwhentosellyourbusiness.Basedonmy15yearsexperienceinthefieldIcantellyouthatwhenanownerisnotinternallyconvincedthatthisistherightstepalmostnevertheprocessendsupsuccessfully.Whenisthebesttimetosell?Thereisnoexactanswer.Nobodycantellyouwith100%certainty.Evenentrepreneurswhohavecompletedsuccessfulexitssometimesbelievethattheycouldhavedonebetter.Ingeneralthebesttimetosellyourcompanyiswhenitisontoporactuallywhenitisclimbingtothetopandalltheforecastsforitsdevelopmentareverybright.Atthatmomentyoucangeneratethebiggestinterestfrompotentialbuyersandtoreceivethebestpossibleprice.Theparadoxisthatexactlyatthemomenttheownersfeelverystrong.Theydon’tthinkaboutsellingandactuallyitdoesn’tmakesensetothemtosellatthatparticularmoment.Itrequiresagreatinternaldisciplineandsometimesthehelpofsomeoutsidefactorsforwhichwewilltalkinalittlebit,inordertodecidetosellyourbusinessinsuchsituation.IrememberthatwhenweworkedonthedealwithDevorexthecompanywasdevelopingverywell.Ithadahugeincreaseinsalesandinprofitsduringthelast2-3years.Theownerhadjustbuiltanewfactoryandmovedtheproductionthere.Oneofthepotentialbuyersevenwassurprisedwhytheyaresellingnowwhentheyjustmovedinandhavenotyetusedthepotentialofthenewfactoryandtheinvestmentstheyhavemade.WehadanidenticalsituationwhentheownersoftheconfectioneryproducerPrestige-96soldtheircompany.Theyhadagreatfinancialresultsandtheyjustbuiltanewfactorywhichtheyweregoingtomoveinverysoonafterthedeal.Inthefirstcasewehadownerswhichwecandefinethemasserialentrepreneurs.Thosearepeoplewhichcreateabusiness,developittosomestageandtheysellitsuccessfullytosomebodyelse.Inthesecondcasewehadownerswhichhadonlyonebusinesswhichwaslikeakidtothembuttheyhadreceivedanoffertowhichtheycouldn’tresist.Inbothcasesthedealstookplacewhenthecompaniesweregettingtothetopoftheirdevelopment.Ifthereissomethingwhichyoucansayforsureisthatagoodtimeiswhenyouhavethetimeofyourlifeintermsoffinancialresultsofthefirm.InBulgariainmostcaseswhenthebusinessisdoingwelltheownersfeelconfidentandtheytellyouthatiftheyhaveagoodoffertheywouldsellbutactuallyinpracticetheyneverdoit.Theirexpectationsforpricearesohighatthatmomentthattheylookoutragestothebuyers.Thisisnormalhumanreactioninsuchsituation.OwnersexpectthatsomebodylikeSantaClausewillcomewiththebigbagwithmoneyandwillgiveittothem.ThishappensfromtimetotimelikewasthecaseofPrestige-96butitisnotthenormalpractice.AttheendnobodysaysthatMercedesisabadcarbutdoesitworththepriceoritisbettertohavetwoToyatasforthepriceofoneMercedes.However,whenthebusinessforobjectiveorsubjectivereasonsstartexperiencingdifficultiesthentheownersstartlookingforpotentialbuyers.Usuallyinsuchsituationthebusinesshasgonetoadownwardspiralfromwhichitishardtogetout.Becausetheirbusinessisdecliningthepotentialbuyersareworriedandthat’swhytheyofferdiscountedvaluations.Theownersarenotpleasedwithsuchvaluationandtheydecidetowaitalittlebitmorehopingthatthingscangetbetterorthatsomeidiotinvestorwillcomeandgivethemabetterprice.Iftheentrepreneursdon’ttakeactionstostabilizethecompanyanddosomerestructuring,whichisnotalwayseasybecauseofobjectivereasons,theirsalesandprofitscontinuetogodown.Theinvestorsstartfeelingevenmoreworriedandtheydecreasetheiroffersevenfurther.Veryoftenasaresulttheownersareforcedtosellassetsoriftheyhavealotofbankloansthenthebanktakescontroloverthecompanyandthebankitselfstartssellingoffallassetsinordertogetbackpartoftheloanstheyhadgiven.Perhaps,caseslikethiswhichareveryoften,createdthisperceptioninBulgariathatifabusinessisforsalethismeansthatithasfinancialdifficultiesorthereissomethingwhichisnotright.Thereissomethingwhichishiddenandwhichwillshowupatalaterstageoncetheinvestorhasboughtthecompany.Otherwisewhyanentrepreneurwillsellaveryprofitablecompany?Thereareseveralobjectivereasonsforthatstepandwewilldiscusstheminalittlebitbutthemainreasonistoreducetherisk.Thewisemensay:“Itwillnotalwaysbelikethat”.Asthebadperiodsatsomepointendsalsothegoodperiodsdon’tcontinueforever.Nowaninterestingexamplecomestomyhead.ThisistheprocedurefortheconcessionofSofiaAirportwherewewerehelpingtheoneoftheinterestinginvestors.Itistruethatwhenwearetalkingforprivatizationdealstherearealsonon-economicfactorsbuttheBulgariangovernmentlongtimewaswaitinganddidn’tstarttheprocedure.TheBelgradeairportwhichissmallerthanSofiaairportwasgivenunderconcessionin2017andtheSerbiangovernmentdidaverygooddealintermsofastrategicinvestorandthemoneyitreceived.In2018thegovernmentstartedtheprocessforasecondtimebutitgotdelaydandinthemiddleof2020thedealisnotclosedyet.NowbecauseoftheCovid-19situationwhichwillhaveverylongtermeffectsontheavioindustryIdon’tknowhowtheinvestorswillreact.Actuallywehaveachosenbuyerbutthedealwasnotclosedofficiallysincesomeofotherinvestorscontestthedecisioninthecourt.PerhapsthegovernmentgotluckyinthelastmomentsincetheygotabindingofferbutmypointwasthatiftheydelayeditseveralmoremonthsandwiththisCovidsituationtherewillbeyearstillthemarketnormalizeinthesector.Amanneverknowshowthesituationwillchangeinthefuture.Ifatthemomentanownerbelievesthathecandoublehisbusinesswithin3-4yearswiththesameprobabilitythebusinesscanalsodisappearcompletelyforthesameperiodoftime.About10yearsagoweworkedonadealaboutfrightrailmanufacturer.Thecompanywasdoingverywellandwasprofitable.AtthetimetherewasahugeshortageoffreightrailwagonsandtheBulgarianstaterailwaycompanywaswonderingwhattodoandhowtoservethedemandofthemanufacturersforwagons.Backthentheownersofourclientdecidedthatbesidesrefurbishingofwagonstheycanalsostartmanufacturingbrandnewfreightwagons.Theyhadfoundabiginternationalcompanywhichsignedacontractwiththemforthemanufacturingof800brandnewwagons.Thecontractwaswithfixedprices,guaranteedworkandcashflowsforthenextseveralyears.Thecompanyhadtobuildanewproductionhallwhichwouldtakeaboutayearbeforethefirstwagonswereproducedbutthattimewasincludedinthecontractsoeverythingwasplannedverywell.Theownershadalreadystartedbuildingthenewproductionhallbutatthesametimetheywantedtoattractalsoaforeigninvestorinthecompany.Weorganizedtheprocessandwehadover10visitsfromvariousinvestors.Someofthemwerestrategicinvestorsandotherswereinvestmentfunds.Therewasahugeinterest.VeryseldomwehadmanagedtogeneratesuchaninteresttowardsaBulgariancompany.Howeverlet’snotforgetthateverythingwasjustyetonlyonpapers.Thesignedcontract,theplansandtheproductionhallhadtobebuilt.Theinvestorsconsideredsomerisksandnormallydiscountedtheiroffersforthoserisks.Someoftheofferswerenotsobadbuttheydidn’tmeettheexpectationsoftheowners.Theideawasthatoncewebuiltthenewfactoryandproducethefirstnewfreightwagonsthenmanyofthoseriskwoulddisappearandtheinvestorswillincreasetheiroffersfortheacquisition.Thatwasgoodasaplanbutthenthefinancialcrisisof2008came.Thebusinessofalmostallcompaniesshrankandthebusinessdidn’tneedsomanywagons.Allofasuddenfromahugeshortageoffreightwagonsthetransportationcompanieshadsparewagons.SincetheBulgariancompanyhadsomedelayswithbuildingthenewproductionhallandthefirstwagons,theforeigncompanyusedthatdelayanddecreasedthenumberofthewagonswhichtheyweregoingtobuy.Iamsayingitwaswithmultipleoftimesnotpercentage.Itwasahugechangeinthecontract.That’snormalbutthewholeinvestmentprojectandtheloanswhichweretakenfromthebankswereforecastedforthevolumeofproductionwhichwasintheinitialcontract.That’showthecompanystartedinthedownwardspiralforwhichIwastalkingabout.Therewerealsootherfactorsbutattheendthiscompanygotintoverydifficultfinancialsituationandinseveralyearsitbankruptanddisappear.That’swhythemainreasonapersontosellwhenhehasaveryprofitablebusinessisthathehasnowarrantythatitwillbelikethisintwoorthreeyears.
Apersoncangetintotheotherextremesituationwhenwehaveafinancialcrisislikewedidin2008-2009.ItlookslikethatwewillhaveitalsonowbecauseoftheCovid-19situation.Becausethereisalotofuncertaintyandfearintheinvestorthepricesofallassetsandbusinessisgoingdownduringsuchfinancialcrisis.Itdoesn’tmatterwhattypeofbusinessyouhave.Itwillbeveryhardtoreceivethevaluationwhichyoucouldreceivein2018forexample.Apurepsychologicalreaction.ClientswithwhichIamworkingwithforalongtimetellmethatitisnotthemomenttosellrightnow.Iamtellingthemthattheymightberightingeneralbutitalldependsonwhattheywanttodo.Yes,forsureiftheycouldselltheirbusinessfor1000eurostwoyearsagotherewillbenowaytoreceivethesamevaluationin2020or2021.Iftheyhaveagoodbusinessperhapstheycanget800euros.Howeverinabsolutenumberstheywouldbeapaperloss.Atthesametimebecauseofthecrisissomebusinesseswillhavebiggerproblemsandtheirvaluationwillgodownmuchmoresignificantly.Soifyousellyourbusinessnowandyoukeepthemoneyinthebankyouwillloosefromthatdealandbetternotsellitduringthecrisis.Butifyouusethecrisisthenwiththese800eurosyouwillbeabletobuyassetsorcompaniesforwhichyoucouldonlydreamabout2yearsago.Theywouldcostalotmorethan1000euroswhichwasthevaluationofyourbusinessin2018.Itisnormal.Thepricesofthegoodcompaniesandassetsgodownwithsmallerpercentageduringacrisisthanthevaluationofthemoretroubledorleveragedbusinesses.
Whenandwhytosellalsodependstoahugeextendandtothefactifyouhaveseveralbusinessesorthisisyouronlycompanywhichyouhavestartedfromscratchanditislikeyourchild.Ifyouarereadingthisbookmostprobablyyouhavesometypeofbusinessandyouknowverywellthatyourbusinessisreallylikeachild.Insuchsituationitisveryhardtotakeadecisiontosellit.Whenyouhaveseveralcompanies,itdoesn’tmatterifyoulovethemverymuchthefeelingforthemismoreofabusinessanditismucheasiertoselloneofthem.
Whentosellalsodependsifyouwillorganizesomethinglikeformalprocesswithauctionoryouwillhaveprivateunsolicitedtalkswithapotentialbuyer.Whenyouhaveanauctionyouhaveacarefullythoughtthroughdecisionandapreparationfortheprocess.Inotherwordsyouarepreparedandyoucontrolifandwhentosell.Inmostcaseswiththesocallcraftsmenfrommetheyhavecommercialpartnerswhoatsomepointoftimeoffersthemtobuytheirbusiness.Thenthewholeprocessisalittlebitadhoc.
Reasonswhytosellyourcompany
NowIwilldiscussover10reasonswhyanownerisreadytosellhisbusinessbutIamsureyoucancomeupwithevenmoreitems.Veryoftenthedecisionisacombinationofseveralreasons.Gothroughthesecasesandthinkiftheyapplyforyou.Ifthatisthecasethenyoucanseriouslythinkabouttheideatosellyourcompany.
Youaretired.UnderthisdenominatorcangomanyofthecasesatleastweatSynergyGrouphaveworkedon.AsignificantpartoftheBulgarianprivatecompaniesarefoundedinthe90s,afterthecommunism.TheywereeitherprivatizedfromthestateownedenterprisesorwereGreenfieldinvestments.Aftertheownershavedonebusinessforover20yearsnowtheyareveryexhausted.Notsomuchphysicallybutpsychologically.Youknowhowbigresponsibilityistocreateabusinessandtotakecareofemployeesandclients.Havealsoinmindthatmanyoftheownerscouldn’tbuildacorporatestructuresintheircompanies.Thisdidn’tallowthemtohireprofessionalmanagerswhichtotakeovertheoperatingactivities.Asaresulttheownerswereundereverydaypressurefor20yearsandthisisnoteasytohandle.Theyusuallytellmethattheyarereadytostayinthecompanyonamorestrategicroleandtohelpbuttheydon’twantto“drivethetrain”anymore.
Necessityofsignificantinvestmentsinthebusiness.Perhapsyourbusinesshasreachedastagewhereasignificantinvestmentshastobemade.Itmightbefornewmachines,newproductionhall,orforstartinganewlineofbusiness.Ifyoudon’tdoityouknowthatyourbusinesswillnotbesocompetitiveanymore.Yourrevenuesandprofitswilldecrease,yourbusinesswillshrinkandcanevendisappearinseveralyears.Perhapsifyoudon’twanttotakethisriskwiththenewbiginvestmenttoletsomebodyelsetotakeoverandhewillcontinuethefightwithyourcompetitors.
Abigcompanyhasjustacquiredoneofyourcompetitors.Let’stakethefollowingexample.Let’simaginethatinadistrictcitytherearetwolocalretailfoodchains.Oneofthemisyours.Formanyyearsyoucompetewithyouneighbor.Sometimesitismoresuccessfulandsometimesyouhavemoredifficultiesbutyoumanagetodevelopandgrowthebusinessduringalltheseyears.Onedayabigmultinationalretailchainwithdeeppocketsisbuyingyourlocalcompetitor.NowthegamewillbemoresimilartothefightbetweenDavidandGoliath.Youcantrytokeepfightingalonebutifyouwanttomaximizethevalueofyourbusinessitmightbebettertothinkaboutsellingitortoattractabigfinancialpartnerwhowilljoinyourcompanyasashareholder.
Theheirsarenotinterestedinthebusiness.MostcompaniesinBulgariaandallovertheworldarefamilybusinesses.Whenyouhaveworked15-20yearsonaprojectanditissuccessfulthebiggestjoyforanyparentistoleavethecompanytohisheirssothattheycancontinuehiswork.Sometimesthisworksoutwell.Therearenumerouscasesintheworldforfamilycompanieswhichmanagedtotransfertheownershipfromonegenerationtoanothergeneration.InEasternEuropenowisthemomentwhenwewitnessthefirstwaveoftransferringtheownershipandmanagementbetweenthefamilygenerations.Manyofthekidsofthelocalentrepreneursarealreadygrownuppeopleandtheyarereadytotakeoverthewheel.HeretwoproblemscanariseandtheyaretypicalnotonlyforthecompaniesinEasternEurope.TheonlydifferenceisthatweinBulgariawitnessthisprocessforthefirsttimewhileinWesternEuropeitisnotsomethingnewandpeoplehavesomeexperiencehowtohandleit.Thefirstproblemisthatthekidsmightnotbeinterestedtoworkanddevelopthebusinessoftheirparents.Itisnormal.Everypersonhasdifferentinterests.Thefactthattheparentshavesetupatouroperatordoesn’tmeanthattheirkidswantstodevelopthebusinessatall.Perhapsthekidmightwanttobecomeamusicianortodevelopadifferentkindofbusiness.Forexamplesomethingrelatedtotechnologyandtosetuptheirownstartup.Oneoftheoptionswhichtheentrepreneurshaveistoforcetheirkidstotakeoverthebusinessbutveryoftentheresultswon’tbeverygood.Thereasonisthatkidwon’tworkwiththesamepassionasyoudobecausehe/shedoesn’tlovewhatyouaredoing.Undertheterm“Force”Idon’tmeanadirectorderforyourkidstotakeoverthebusinessfromyou.Forexampleyouhaveseveraltimesmentionedinthefamilythatyouaredevelopingthebusinessforthem.Youhavesentthemabroadtostudybusinessandtheyknowthatonedaywhentheycomebacktheyare“supposed”totakeoverthebusiness.Ifyouraisedyourkidswellandtheyareresponsiblepeopletheywillnotrejectthisexpectation.Thequestionisiftheywillbehappytocontinueyourefforts.Perhapsitisbettertosellthebusinessandwithpartoftheproceedsyourkidscangoandtrymaketheirdreamscometrue.Whatevertheyare.Theotherpotentialproblemwiththeheirsisiftheyhavetheskillsandcapabilitiestotakeoverthebusinessfromyouandrunitsuccessfully.
Thefactthatyouhavesentthemtothebestbusinessschoolsdoesn’tautomaticallymeansthattheywillbeassuccessfulas