How To Sell Your UAE Business – Do It Once, Do It Right!- Part 3

16 Dec 2019

• Accounts: Ensure your finances are in good order and, if possible, reasonably stable throughout the year. Buyers prefer businesses that show increasing profits year on year and removal of cost inefficiencies. You need to show strong financial performance over the last 3 to 5 years and present your accounts (annual accounts, cash flows, management accounts, and tax returns) attractively as possible in a simple and user friendly format – the goal always to maximize profitability (i.e. income generating capability) and demonstrate cash flow. Be prepared to explain any anomalies/discrepancies on your accounts as part of the sale process. Provisions for bad debts, dividends, drawings, and expenses all need to be managed well in advance, and having a good sales forecast will help provided it is realistic and supported with evidence. 

• Financial improvements: Try cutting unnecessary costs to increase profitability. Review major expenses and general overheads.  Take greater control of working capital through reducing stock levels and controlling creditors.  Consider cost cutting opportunities such as re-assessing manpower/resources, avoiding taking on new staff, reducing advertising/marketing spend, renegotiating supply contracts, and eliminating other unnecessary expenses.  Think about selling underused equipment to reduce debt, bringing forward or delaying purchases and sales, or changing some of your accounting policies. But avoid excessive cost-cutting - you need to maintain spending in essential areas otherwise the business suffers and so does the price buyers will be prepared to offer (a buyer will be dis-incentivised by an acquisition which will require a significant investment post sale). 

• Growth plan: Creating a realistic growth plan is imperative to improving the value of your business.  Buyers will want to understand, with evidence to back it up, the potential expansion to grow the business and take it to the next level - a road map of what has been achieved previously and the prospects of predictable and consistent growth going forward.  To this end you need to be well versed in the state of your specific marketplace and the opportunities available for a new owner to explore assuming additional resources/finances are available. The plan should take account of capital resources a buyer will have after the sale and show the buyer where historic sales were constrained due to lack of capital resources.

• Presentation: Make your business look physically appealing. Take an objective view and get rid of the clutter. Organize, make it look attractive, and give it curb appeal for any buyer that stops by. A buyer doesn’t want to see a dysfunctional unorganized office. Look and feel goes a long way toward building a buyer’s confidence that they are purchasing a well-managed business.

• Books and record:  Are all company records (such as compliance documents, financial information and accounts, commercial contracts, IPR documentation, litigation/disputes files, insurance documentation, property leases, and employment agreements/policies/records) written, available, and up-to-date? A buyer will want to review all of this so it’s imperative you have a well-developed document management and recording system.  The buyer’s counsel will undertake a ‘due diligence exercise’ on your business and will provide you with a detailed questionnaire requesting lots of information and documents. If your books and records are not in an organized and efficient manner the due diligence process will be more difficult, time consuming, costly, and protracted and may even cause a buyer to have second thoughts about the transaction.

• Consents and licenses: Buyers will want to see that your business is properly licensed and has obtained all relevant regulatory and trade consents/permits to operate its activities and that you have obtained any relevant consents required to complete the sale transaction from any government departments, shareholders, bankers, financiers, customer or suppliers. Any missing will need to be obtained prior to ‘closing’ which might have an impact on deal structure and completion timescale. 

• Pre-sale business restructuring: Just like you wouldn’t buy a car without the checking under the hood and getting the seller to fix any issues, or you wouldn’t buy a house with a leaking roof without getting the homeowner to patch the roof, a buyer is unlikely to hand over cash for your business (whether for a small stake or the whole business) until you have resolved the areas that they consider to be risks. You need to focus on these risk areas if you want to make your business an attractive proposition. Audit your business from the viewpoint of a buyer. Look at the things which contribute to your business’ success from facilities, products, and people to marketing and your brand image. Reflect on the findings and take time to improve on anything you see lacking prior to commencing the sale process.  These may involve, for example, putting in place an appropriate corporate and/or management structure, ensuring adequate contractual protections are inserted in agreements with key customers/suppliers, or re-negotiating property lease terms to ensure there is sufficient remaining term to be saleable to a buyer (important in some sectors such as retail and leisure where the goodwill is largely in the premises). Present your business as ‘market ready’ rather than in ‘housekeeping’ mode.  Think of it like slapping a coat of paint on your walls before you sell your house - it takes time and a bit of investment, but ultimately it often increases the value of the house. The same applies to your business.

• Management structure: You need to show you have a strong management team and structure.  Assess if the current team and structure will ensure the business continues to operate effectively and profitably when the owners are no longer around.  Key to a buyer’s decision to acquire (or pass over) a business, a buyer will want reassurance that its transition to new ownership will be seamless.  If your business is too dependent on the owner’s skills and input, it might damage the price it can fetch and could even make it impossible to sell. Having the right management team and structure will enhance value by alleviating that risk. You may also want to encourage key employees to stay by considering implementing pay increases, bonuses, or other incentive schemes.

• Discretion: The sale of a business can create considerable unrest among your team, customers, and suppliers. So it’s wise to keep your exit plans under wraps until the sale is imminent and there is a committed buyer and a deal on the table.

• Resources: The juggling process of preparing for a sale and handling the sale transaction itself whilst continuing to run your business can be a daunting task.  Consider who internally will assist with the exit process, how will communication lines be organised internally and externally, and who internally will have decision making authority. Liaising with professional advisers and providing legal, commercial, financial, and tax due diligence information to the buyer will be stressful and time consuming and the information flow process needs to be well organised/managed and slick.  Having the right internal team resource devoted to the transaction is crucial to ensure a smooth sale process.

James Berry & Associates Legal Consultants has over 30 years’ experience helping business owners in UAE across all sectors achieve their exit objectives.  If you are consider selling your business now or in the future, we have a team of lawyers with proven corporate/M&A experience that can assist you every step of the way. For further information on our legal services and how we work with clients please contact James Berry or Neil Large.