In this article, Peter Chopra from GO provides some valuable tips on how to sell your business.
"Have Your Cake and Eat It"
Great Outcomes Principal, Peter Chopra, discusses a new product for businesses wanting the benefits of a merger without the traditional loss of ownership and control
12 October 2009
Wouldn't it be nice to have your cake and eat it? Sounds improbable, doesn't it? In the current economic and credit environment, many M&A propositions are floundering due to low multiples and a lack of cash. And yet there remain fundamentally sound reasons why businesses would want to join together, including:
- Economies of scale
- Cross-selling benefits
- Strategic issues
- Financial issues
- Reputation
- Exit maximisation
However, business owners are naturally concerned about linking themselves to other businesses when cash is not immediately forthcoming. The reasons are for this are understandable – mixing your income and capital value with another party, loss of control, arguments over relative values and growth prospects are all key issues, especially if you have only one chance to realise the exit value of your business. So, we have put our thinking caps on and designed a new approach, based on pre-existing legal precedents, to allow business owners to enter into merger arrangements but with a difference:
- Each party gets to keep their own income
- Each party gets its own capital value on eventual sale
- No party loses day-to-day control of its business
The key to it all is that it must still be possible to maintain separate financial records for each business in the merged entity. It doesn't matter if you have shared resources (e.g. back office); arrangements can be made to deal with that. Owners will need to cede a degree of control on the exit timing and negotiation (which we normally recommend to be entrusted to an independent party). In fact, the "merging" of exit control is the only real downside. Sound interesting? We think so which is why we called this product the "Have Your Cake and Eat It" merger!