Selling A Business In The Current Market & Thoughts From People Who Have Sold

[FIGGY]

Just a  couple of thoughts in two veins really:

I’ve had a very fair offer for my business of which I’m one of two shareholders of which I have a significant but minority stake. The deal which is currently in DD but a long way forward will probably go ahead and would give me £400k post tax & a well remunerated job afterwards (unless/until they decide my face doesn’t fit in new co). Has anyone on here sold before for a similarly small amount i.e. not life changing £2m+, what did they think, did they enjoy going back to work for someone etc (I’m under 40 so have a  decent chunk of my working life ahead of me).

As we enter what is looking like an inflationary period and a majorly devalued £, would other people be reassessing what getting a chink of cash in means or are there always opportunities for capital growth in either environment i.e inflation (should) drive rates and therefore savings returns. Are there any big things people would suggest I consider?

It’s been difficult enough making the decision to sell and now the market uncertainty is making my head spin

[Mikhail Liebenstein]

My brother in law had something similar in 2007, but made the mistake of letting his wife buy a new house at a massively overinflated price - probably wiping out half the gain by overpaying and before they'd sold the other one there taking out a bridging loan. They almost went bust as a consequence.

Depending on what you want to do and in what timeframe, you are still young, I'd get the bulk of the money into sensible investments, probably some kind of global fund. Overtime I'd then trickle some into an ISA account so as to use the full tax benefits and even pay some into a pension fund for the longer term. The benefit of that is that you get the income  tax break as you are still working.

This way, you can pretty much turn £400k into £500k, and get tax free growth on the ISAs,  and to some degree on the pension.

[Mapatasy]

A little difficult to answer without knowing your industry?

Do you believe that some form of correction is on the way and if so - is your business likely to flourish or struggle in a period of economic downturn? If your answer is the latter then I'd way up the risk and, if I considered it to be high, I'd exit having leveraged 'at top' and vigilantly wait for opportunities.

I'd rather chew my own legs off than work for someone else but £400k plus salary is a great position to be in and ultimately my decision would be cold and hard and based purely on the cash.

Low interest rates and the ensuing rise in asset values has tricked people into forgetting how gigantic a sum like £400,000.00 really is.

Personally I'm confident that an epic crash has crept up behind most in society and is towering over the highly leveraged credit spendthrifts like a tidal wave from a Hollywood blockbuster... there is going to be much financial distress and ultimately desperation led opportunities in which £400k with coupled with any form of job security will go a long way.

 

[dougless]

11 minutes ago, Mapatasy said:

A little difficult to answer without knowing your industry?

Do you believe that some form of correction is on the way and if so - is your business likely to flourish or struggle in a period of economic downturn? If your answer is the latter then I'd way up the risk and, if I considered it to be high, I'd exit having leveraged 'at top' and vigilantly wait for opportunities.

I'd rather chew my own legs off than work for someone else but £400k plus salary is a great position to be in and ultimately my decision would be cold and hard and based purely on the cash.

Low interest rates and the ensuing rise in asset values has tricked people into forgetting how gigantic a sum like £400,000.00 really is.

Personally I'm confident that an epic crash has crept up behind most in society and is towering over the highly leveraged credit spendthrifts like a tidal wave from a Hollywood blockbuster... there is going to be much financial distress and ultimately desperation led opportunities in which £400k with coupled with any form of job security will go a long way.

 

What he said.  I would also add that if your business is in a high risk sector like hospitality then I would bite their hands off for an offer like that.

[dgul]

1 hour ago, FIGGY said:

Just a  couple of thoughts in two veins really:

 

I’ve had a very fair offer for my business of which I’m one of two shareholders of which I have a significant but minority stake. The deal which is currently in DD but a long way forward will probably go ahead and would give me £400k post tax & a well remunerated job afterwards (unless/until they decide my face doesn’t fit in new co). Has anyone on here sold before for a similarly small amount i.e. not life changing £2m+, what did they think, did they enjoy going back to work for someone etc (I’m under 40 so have a  decent chunk of my working life ahead of me).

 

As we enter what is looking like an inflationary period and a majorly devalued £, would other people be reassessing what getting a chink of cash in means or are there always opportunities for capital growth in either environment i.e inflation (should) drive rates and therefore savings returns. Are there any big things people would suggest I consider?

 

It’s been difficult enough making the decision to sell and now the market uncertainty is making my head spin

 

Best not to ask others for financial advice -- it has to be your choice.  But FWIW for those sort of sums I'd probably employ a local 'wealth management' person (ie, local can keep fees low), at least for a large % of it.  

Re. selling the business -- look at your core skills.  Are you a business builder, creating value out of nothing?  Or are you a business runner, keeping track of all the day to day activities to keep the business strong?  If the former, be minded to sell and do it again.  If the latter, keep with it.  I'd say don't overvalue the long term job post sell -- an ex-director isn't a good person to be hanging around a new ownership for too long.

If you sell, get a plan and stick with it -- eg, 12 months high level support (sitting with the new directors), 12 months handover, gone by 24 months.  You'd probably be best off including this in the negotiations of sale.

[FIGGY]

Thanks all, still need to negotiate the tie in period but they are very keen to have me in over the long term,  I on the other hand am hoping I can keep it short.  2y max

As far is industry,  its not ideally placed in a downturn but it has a twist and during 2007 we did well so I don't think that side of things has a big influence. 

My fellow shareholder is a lot older so he would be quite keen to crystallise the value in the business as he moves closer to retirement. 

 

[dougless]

49 minutes ago, FIGGY said:

My fellow shareholder is a lot older so he would be quite keen to crystallise the value in the business as he moves closer to retirement. 

 

That could put you in a very difficult situation later on; another reason to get out I would have thought.

[Foreverblowingbubbles]

Hiya figgy.

I went through/am going through a very similar situation. I was first employee and a minority shareholder in an Internet startup that did quite well. We began merging with a big international competitor in 2012, and I finished an 18 month earn out at the start of 2014. I've banked a nice sum, similar to you, but also hold shares in the company that acquired us. These have increased in value by about 7 times since we merged,so most of the gain I've made is actually in holding the shares of our acquirer, not in selling my original shares. 

I would say that it really depends on what you want for the next period of your life. if the business still has the potential to grow at 10% per year, (even in some cases 50% per year or more), then just in terms of the value of your shares, it doesn't really make sense to sell up or leave the company unless you're unhappy and need a change. What is worth 400k now, at 10% growth per year would be worth 650k in 5 years. Just bear in mind, if someone is buying the company, they probably have plans to grow it. I don't know anything about your particular business but it's not impossible those shares could be worth a lot more later....  IMO growing a moderately successful business by 5 times is a lot easier than creating a moderately successful business. 

So, if you're an important part of something that's growing and creating shareholder value rapidly, it rarely makes sense to sell many or all of your shares. Better to get a lower salary, ane be paid more shares in fact! It might make sense to cash out some %, to bank a nest egg and allow you to put some eggs in other baskets - especially getting the mortgage paid off and being debt free. But if you don't have plans/need for all the money, see a lot of future growth in the company, and love working there,  then I would definitely keep as many shares as possible and also ask about share options to keep you there through the transition and beyond.

As a side note, keeping a good amount of shares would also show your commitment/skin in the game to the new management team, if you do still want to work there long term

Bear in mind as well, you might be part of enterprise management incentives(?), so your cgt tax rate should be really low (10%?), and that generally makes it easier to grow wealth through the shares increasing in value, compared to getting a good annual salary with higher tax

Something personal and really important.... If you're happy, and feel like this is your baby, I would think very carefully about leaving. That's really precious and hard to recreate. The jobs I've had since leaving the company we buily have really felt like I was repeating myself, but doing if for someone else, not on 'my baby' where I had helped establish the culture of the company.  

Having walked away from a business I worked at from day 1 through to a merger and beyond, I do miss my time and the team we built there,  and I haven't found it easy to rediscover that magic when working in other companies. To be honest, I've suffered a period of moderate depression and have felt quite bereaved at leaving the company that I put all that time and energy into...  It's hard to get the hunger back to start all over again, when you know what a long and tough slog it was the first time out...  I'm now considering a complete change to my career,  as I feel I've achieved all my objectives in this type of role and want a different challenge.

One last thing to consider though, is do you like the new people, do you want to still work there, and do you see yourself getting sidelined or retaining an important role? If you dont think the new environment is going to suit you, then it's probably best to just get your money out - especially if you're going to need it all.

Shares in undoubted (off stock market) businesses are incredibly illiquid, so it wont be possible to sell shares whenever you want (I've been open to selling some of mine for 18 months and been unable - in essence they're valuable on paper, but I can't find a buyer because the company is preparing for an ipo and doesn't share enough information with outsiders for anyone to value the shares). So holding in to shares could result in big gains, but no cash in your pocket for years. 

So this is really long and I do t know the specifics. Feel free to ask any questions. Hope it helps 

Bubbles

[Foreverblowingbubbles]

Edit above* Undoubted = unquoted = not on stock market = illiquid

 

[Foreverblowingbubbles]

16 hours ago, FIGGY said:

Just a  couple of thoughts in two veins really:

 

I’ve had a very fair offer for my business of which I’m one of two shareholders of which I have a significant but minority stake. The deal which is currently in DD but a long way forward will probably go ahead and would give me £400k post tax & a well remunerated job afterwards (unless/until they decide my face doesn’t fit in new co). Has anyone on here sold before for a similarly small amount i.e. not life changing £2m+, what did they think, did they enjoy going back to work for someone etc (I’m under 40 so have a  decent chunk of my working life ahead of me).

 

As we enter what is looking like an inflationary period and a majorly devalued £, would other people be reassessing what getting a chink of cash in means or are there always opportunities for capital growth in either environment i.e inflation (should) drive rates and therefore savings returns. Are there any big things people would suggest I consider?

 

It’s been difficult enough making the decision to sell and now the market uncertainty is making my head spin

 

Just to respond to your thoughts/questions on inflation, obviously it's impossible to predict the future with any certainty. But what is easy to predict is that the return on cash, and most likely (especially if you have the hpc view) residential real estate is unlikely to be much ahead of inflation, if at all.

Business earnings of course tend to rise with inflation, as prices are put up. Margins and profitability may be squeezed, and certainly margins may not be as high in the future as they are today, but an in-demand business with pricing power is likely to be a better protection against inflation than hoping for a positive real yield in a cash account.

Holding a quality income producing asset such as shares in a good quality company is likely to be an effective protection against inflation. Normally the same would be true of real estate as well, but given almost all inflation over the last years in the uk has been on real estate, that seems less sure than at most times in the investment cycle.

I personally like having shares in companies where I know most of what's going on and what the business prospects are, because I'm involved by working in the top tier or 2 of the company management. Concentrating all of your wealth into the fortunes of a single company is inherently a high risk/high reward thing. You could lose the whole value if the company fails, but IMO it's about the only way to make a genuinely life changing sum of money over 5-10 years. I don't agree with the system working that way, but in these days of hyper-elitism, that's the game. 

As I say, I don't know your business, but from my experience by far the best decision I ever made financially was instead of getting paid cash for my shares back in 2014, cashing out just a little bit to make sure I've got enough to buy a modest house in a cheap area outright (which I've not done as yet), and then continuing to ride the capital appreciation by swapping the rest of my shares for shares in the acquiring company, which continued to grow rapidly.

If you think this could be the same situation for you, I would take out the minimum I need, and hope that the rest grows 5 or 10 times more and you can sell it in 5 years. 

This strategy doesn't  require you to change anything and continue working there beyond your 18 month or 24 month earn out period, if you don't want to. And as long as the shares are exchanged at 1:1 value ratio, you would only pay tax on the cash taken out. You'd pay tax on those swapped ones when the new shares are sold at the end

By the way, probably obvious but make sure you pay for proper legal representation through all this, and read and fully understand the legal docs yourself. My experience with lawyers was that they can write a contract, but don't always think about all the angles and can miss import details. Be sure you understand all the potential scenarios yourself and can challenge them 'but what if x y Z happens?' 

Just my 2 cents worth. As with everything in life, do what you think will maximize you and yours' happiness 

[FIGGY]

On 1/18/2017 at 11:15 AM, Foreverblowingbubbles said:

Hiya figgy.

...

Bubbles

Thanks you for that, is so hard to find people willing to talk about their experience and the people I know in the industry that have sold have either done so for a lot more and have been set for life or have "sold" as part of a private administration and have really just offloaded debt and any personal guarantees.

We have steadily grown our business but mainly in turnover, although I do have a good directors package £130k+ PAYE equivalent so that cant be underestimated. I know that to move the business forward it will require a huge commitment from me over the next 5y and I'm not sure if I have it in me, its also not the type of business that is very easy to sell (I cant say the type as there are so few it will be easy for someone to find out who it is). A trade sales is really the only way and with a very very limited market.

I have a real love/hate relationship with my current business, I do love the people and what we have built but hate the grind of HR issues, constant chasing my tail and general worry.

Investment wise I do have to remind myself £400k is a lot of money (easy to overlook when you talk about houses prices but vs most other things its a lot). The deal is 100% cash almost all up front with a very small true up figure, I also know that there are quit e a few business that would like me to work for them and I could probably get an equity stake in them as part of any future package. In the end I guess I have no idea if I will like working for someone else unless I do it.

[FIGGY]

10 hours ago, Foreverblowingbubbles said:

Just to respond to your thoughts/questions on inflation, obviously it's impossible to predict the future with any certainty....

Thank you, if the shares were publicly traded then I would probably agree, but I would have a very very small share of the acquiring company which makes it even harder to sell. They also have a very aggressive expansion plan so I would be open to heavy dilution. I'm also very risk adverse and feel they may make it big but could also crash an burn - just may opinion and I don't often get these things right in my personal investments....

[Foreverblowingbubbles]

3 hours ago, FIGGY said:

Thank you, if the shares were publicly traded then I would probably agree, but I would have a very very small share of the acquiring company which makes it even harder to sell. They also have a very aggressive expansion plan so I would be open to heavy dilution. I'm also very risk adverse and feel they may make it big but could also crash an burn - just may opinion and I don't often get these things right in my personal investments....

Sounds like you're doing the right thing on several fronts. If you're not comfortable that they'll make a success and think it could crash and burn, then as you say 400k is an amazing, life changing amount. you'd work half a lifetime to save it normally, even on a great salary. 

Congrats, and good luck with the transition. 

Word of advice, just from what I saw when we were taken over...  the acquirer tends to think they know best, even on stuff that you do very well. We made the mistake of believing them, because of the amount of money they had behind them. Don't just let go and let them take everything over too quickly, as they won't understand your processes and will break the business and customer/clients experience.

If I were to do it again, I'd not let them make any changes in the first 6 months, and get them to ensure they can support existing processes before transitioning over to their own working practices over time. It's the only way you can be sure they'll actually put some effort into learning how you guys work, rather than just wanting to cookie cutter their existing tools, methods etc. That didn't work well for us, and made the transition period more difficult than it needed to be

[FIGGY]

Thanks Bubbles,

I think they will want me to run it separately for a while and then see which bits overlap, who has the strongest teams etc then start to consolidate to get the savings (100 day plan still to be drawn up, but as you say min 6 months of not changing the fundamentals seems sensible). Saw our solicitors to look over the contract, the non compete is very very very heavy so I have quite a lot of work to do on that part otherwise I could find I'm locked out of working in any associated area for many years and have to use my capital to feed myself, I feel I need to look at the non compete alongside the employment contract an tie in period etc not in isolation which is how its currently being viewed.

[Dick Dastardly]

On Friday, January 20, 2017 at 8:43 AM, FIGGY said:

Thanks Bubbles,

I think they will want me to run it separately for a while and then see which bits overlap, who has the strongest teams etc then start to consolidate to get the savings (100 day plan still to be drawn up, but as you say min 6 months of not changing the fundamentals seems sensible). Saw our solicitors to look over the contract, the non compete is very very very heavy so I have quite a lot of work to do on that part otherwise I could find I'm locked out of working in any associated area for many years and have to use my capital to feed myself, I feel I need to look at the non compete alongside the employment contract an tie in period etc not in isolation which is how its currently being viewed.

Weath Warning: I've no experience in this area.

With that out of the way, how about setting yourself up as a personal service company and "consulting" under contract for the same period as the non-compete clause?

That way (as I understand things), you could sue for breach of contract if they try to get rid of you during the contract/non-compete period.

Also, the contract between your PSC and the company can set out clear lines of authority/accountability for each party to help avoid messy situations later.

D.

[FIGGY]

Thanks D. 

 

I've decided to take myself away from the business for a week to get my head together.  Don't feel I can make the biggest decision of my life whilst swamped with work. Fingers crossed for a moment of clarity 

 

[thisisthisitmaybe]

On 1/26/2017 at 0:01 PM, FIGGY said:

Thanks D. 

 

I've decided to take myself away from the business for a week to get my head together.  Don't feel I can make the biggest decision of my life whilst swamped with work. Fingers crossed for a moment of clarity 

 

Any news? Company wasn't Marmite was it?

[spunko2010]

Not sure if too late now but here's my 2 pence having been in a similar position about 4 years ago.

It really depends on your personality. £400k isn't going to last very long; a lot of people will never come into that amount of money and see stars, i.e assume it's a lifechanging amount - but it really isn't. It'll allow you to have a few wonderful years off - but what then? I know that if I sold my business when offered I would have deeply regretted it - look into Jo Malone's story for a good descriptor, she has written extensively about her 'loss' and regret. What does one do with oneself if not working at least some of the time? Do you have any other plans?

 

[StainlessSteelCat]

It does depend on the lifestyle you lead.  Since house is bought and paid for, I know I can retire on a bit more than £400K (I just haven't chosen to yet). A couple of years at the salary the OP is talking about, and you could live very comfortably. 

http://www.mrmoneymustache.com might provide the OP some inspiration as might http://www.retirementinvestingtoday.com. It doesn't mean you necessarily have to retire, but it does open up opportunities in a way you might not normally have. For myself, I've found I can afford to take more risks at work in terms of ideas I put forward and try out.