Methods for valuing a company are compared and the planning, negotiation and execution of its sale are described.
The course also highlights the principal points to be negotiated in a Sale & Purchase Agreement and explains the meaning and effect of representations, warranties and indemnities.
How to Achieve the Highest Price and the Best Terms
- Typical Mistakes in Disposals – avoid them with a carefully designed strategy
- Reasons for Selling – a corporate advisor must understand the seller’s objectives
- Planning for Success – appropriate procedures for all stages of the transaction
- Categories of Seller – family firms, entrepreneurs, large commercial or private equity
What is the Company Worth?
- Fundamental Questions – Is the company saleable? Is it the right time to sell it?
- Common Misconceptions – the value of sweat & toil; the search for a premium buyer
- NAV, DCF, Enterprise Value – how they interlink and how they should be used
- Valuation by Comparison – PERs, the efficient market theory and shortcut valuations
The Importance of Pre-Sale Planning
- Appointment of Advisers – why use advisers? what do they offer?
- Disclosure to Advisers – what sellers should tell their corporate advisers
- Engagement Letter – scope, extent, authority and access
- Agreeing the Fees – time, fixed, percentage of consideration (sliding scale)
- Reasons for ‘Sell Side’ Due Diligence – keeping control of the deal
- Preparing the Management & Staff – directors, the marzipan layer & junior employees
- Warranty & Indemnity Insurance – facilitating closure of the deal on the best terms
- Grooming – accounting systems, separation issues & individual problems
- Information Memorandum – health warning, transaction procedure, objectives & content
Meeting Potential Purchasers
- Identifying Likely Candidates – determine the hit list: rifle shot, shot gun or auction
- Confidentiality Letter – does it provide any protection?
- Letter of Intent – what comfort does it give?
- Heads of Agreement – only use them for specific purposes; otherwise avoid them
- Preparatory Tactics – deciding how to handle positive and negative disclosures
- Arguments on Valuation – haircuts for smaller companies, unquoted companies?
- Sale & Purchase Agreement – the purpose of representations, warranties & indemnities
- Limiting the Seller’s liability – negotiating de minimis, caps, time limits & mitigation
- Exclusivity – when to give it and when to take it away
- Earn-Outs – designing an appropriate formula to include buyer’s and seller’s refinements
- Service Contracts & Consultancy Agreements – which to choose and why
- Avoiding Unprofessional Tactics – over-excitement can destroy a reputation
Finalising the Deal
- Caveat Vendor – guarding against change of control or liquidation
- Completion Accounts – when and why they are used; principal mechanisms
- ‘Locked Box’ Transactions – when is the box locked and who takes the ongoing risk
- Completion – a simple formality or negotiating through the night?
Course Notes, Slides and Exercises
Participants will receive a booklet containing copies of 14 slides and 71 pages of very comprehensive notes. Each slide will cover a number of related topics and the accompanying notes will support the content of the course to be delivered by the trainer. During the course of the day, participants will undertake one or two exercises (problems) in groups of two or three (depending on the size of the class) which will involve considering what advice should be given to a client in particular circumstances. Participants will discuss the exercise with each other and then with the trainer and will receive a written answer to the problem.
You have just concluded a meeting with a multinational conglomerate with an immediate requirement for funds to invest in its core business. It has been suggested that a subsidiary be sold. You give preliminary advice before commencing the sale process.
Your client has agreed to sell his company to an AIM listed company and you are negotiating to fix the price at a multiple of 12 times after tax earnings against an initial offer of 8. Another buyer then shows interest at a price equivalent to multiple of 18. You advise the client on how to conduct the negotiations.