Globally around 10% of mergers and acquisitions are cancelled each year, they often stop before they really get started. (Why large M&A deals fail | McKinsey). This is a significant percentage, considering there were approximately 4,232 deals in the UK last year (PWC: UK M&A activity in 2022) So why is this happening? Whether it be in the insurance, retail or telecoms sectors, the answers are generally pretty much the same; mismatched expectations around synergies and value creation, cultural conflict and challenges with integration and regulatory and political issues. Whilst some of these will be out of your control in the run up to the sale and during the sales process itself, there are a number of things you can do to ensure your sale has the best chance of succeeding.
Consider your buyer
It is just as important for you to think about and research the sort of buyer that you want for your business as it is for the buyer to research their sellers. Here are some factors to consider when choosing your buyer:
Future growth and innovation - Which buyer could best position your business for growth? Do they have the right resources, technology, partnerships, marketing and brand strength, and distribution channels to take your business to the next level? This is particularly important if you have a growth based earn out.
The team and communication - It’s extremely important that the various teams get on and are able to work with the people buying your business. The relationship is unlikely to end at the point the transaction concludes, most buyers will expect owner operators to stay on board for a minimum of one to three years to ensure a smooth transition.
Cultural fit - Although time and thought will be spent on ensuring there is a smooth cultural integration, you should still seek to find a buyer with the right cultural fit in terms of values and leadership style.
Financial strength – Is a potential buyer in a position to make a competitive offer and do they have access to sufficient funds to complete the transaction?
Consider the other parties
There are two further groups it’s important to consider when selling your business:
Your employees – They are the key to the success of any business and therefore the key to a successful acquisition. Taking the time to prioritise employee wellbeing and how a sale will impact them is essential.
Your clients - What will the impact be on your clients if you were to sell? As a regional broker, you will be extremely client centric. Think about what aspect of your business attracted your client network and whether a potential buyer is able to offer the same?
Further steps to consider during the sale process
To ensure you make the right decision and conduct a smooth sale, there are a range of factors which are important to consider:
Know the value of your business– Understand what your business is worth and have a clear indication of its value prior to entering into negotiations with a buyer.
Think long term –When considering the value of your business go back further than the last financial year and evaluate a partnering business’ stability and future value.
The integration strategy – Some buyers will give their acquired businesses almost complete autonomy, even permitting retention of the name whereas others will want complete integration from the start. It’simportant you know what you are comfortable with before you enter into negotiations with a buyer.
Are you exposed too much to one supplier or one customer?
Consider what will attract the right buyer – Look at your pipeline and the business’ ability to generate long term value, does your business have a strong reputation, how is your brand perceived in the market?
Get your house in order – Ensure you have copies of all paperwork, such as; management accounts, contracts, forecasting and business mix.
Selling your business is never an easy decision to make, but ensuring you have done your due diligence and taken sufficient time to consider the right buyer and how those involved will be impacted, is paramount. All of these aspects will not only give you the best chance of an effective integration process but more importantly ensure that the business you have built is set up for long term success.
For more information on our M&A offering, please contact Colin McKenna.
Insurance Business UK: To sell or not to sell – the question facing insurance brokers
McKinsey: Why large M&A deals fail