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Timing Your Exit – Don’t Underestimate the Length of the Sales Process Part 2

Unfortunately, for those of us who like to plan, the time it takes to sell a business is not predictable.  In my last article on this topic, ‘Timing Your Exit – Don’t Underestimate the Length of the Sales Process Part 1’, I explained how long the 3 phases of the sales process can take.  In conclusion I suggested that, based on our experience over many years, we advise clients to plan on 12 months before a sale completes and before the (or, more accurately ‘some’) money is in the bank. 

However, even after the sale has completed, the business owner is likely to be ‘tied in’ to a handover arrangement for a number of months.  Depending upon the deal structure, you may be tied in for a number of years. 

Handover:  In most sales, involving an ‘owner-managed’ business, this is the period during which the purchaser will expect the vendor to be working alongside him/her/it for an initial period.  Typically, the agreed period is between 3 and 6 months, usually on a decreasing days per week basis.  The appropriate amount of time will depend upon a number of factors, such as, the degree to which processes and relationships depend upon the vendor alone, the complexity of the business and the experience/resources of the acquirer.  Acquirers often over-estimate the time required and it is a good idea to build in flexibility to allow for a reduction.  The vendor should expect to be paid for the time he/she provides on a ‘market-rate’ basis.  Following on from this period, the vendor will usually be asked to agree to provide ‘support’ via email and telephone for a few months for any issues which arise after their final departure.

Performance-Related Payments:  It is often the case that the final amount received by a vendor will depend upon the post-completion financial performance of the business he/she has sold.  The period over which payments are made will usually be between 2 and 5 years.  Vendors are often reluctant to agree to this type of deal structure, even though it can deliver a significantly higher overall consideration, because, rightly, they feel they cannot control how well or badly the business is run following their departure.  This makes the case, therefore, for a vendor being prepared to stay on beyond the handover phase usually on a (very) part time basis (say, 1 day per month) in a non-executive capacity.  When there are performance-related payments due, acquirers will usually be prepared to agree to this type of arrangement as they will see this not so much as the vendor checking up on them but more as an opportunity to continue to benefit from the vendor’s experience and relationships.

Whatever post-completion arrangements are being discussed, it is important to bear in mind that they must, first and foremost, meet the vendor’s needs because, otherwise, the fundamental reason for the sale will be diluted.  Getting this right is just part of the job of the corporate finance adviser/broker responsible for negotiating the deal.

At Anderson Shaw Corporate Finance Ltd, we are always happy to both provide a free preliminary valuation and also work with the business owner through the period of exit planning and then ultimately a sale.

Anderson Shaw has offices on the outskirts of Stratford-Upon-Avon and provides business broker and corporate finance services for clients throughout the Midlands and the UK.

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