Objectives & Viability of Selling a UAE Business
Is selling the right option?
Give careful and serious consideration to your reasons for sale. You will be asked by potential buyers why you want to sell. They will need to be comfortable with your motivation and answers. Ask yourself the following:
What are your objectives as a business owner?
Do you want to realise some or all of your investment to fund retirement or pursue other business/personal interests? Do you want an ongoing full or part time involvement with the business? Do you want to pass the business onto your children?
What are your objectives for the business?
Does it need new investment to grow and what does the growth look like and how can it be achieved? Does it need new owners and/or stronger management to expand and develop? Does it need to diversify into new markets or revenue streams or consolidate its position in its current market and (if so) how and what benefit will that bring? Does it need to be restructured, why and how? Should long standing employees/management have an opportunity to take it over?
What do you want to sell and to whom?
Do you want to sell all or a part of your ownership in the business? Do you want to sell a specific part of the business assets or the whole undertaking? Do want to split the business and sell each part separately to different buyers? Does the business need to be restructured and/or management team strengthened or replaced prior to, or as part of, the sale? If you have multiple businesses, are any businesses and/or assets to be excluded from the sale and retained?
Who and what else will be affected by a sale?
To what extent will it affect other shareholders, the managers/employees, and/or key customers and suppliers? How will they react and what will they want? Are there any restrictions on the proposed sale of shares/assets/business and what is the impact and how will these be managed?
What will you do after the sale?
Plan what your life will be like after the sale – not a critical step to selling your business, rather a building block for preparing and securing your future. If this step is overlooked you will be left wondering what to do once you no longer own and operate your business. Whether you are retiring or taking up other opportunities, you will need to plan how the sale proceeds will be spent/invested and what your next steps are going to be.
Is a sale realistic?
All businesses can be sold provided they are valued appropriately and marketed effectively, even where the business is not doing too well. The key is for the business to be ready to go to market, which means it needs be functioning correctly and, ideally, profitably. You may need to review all aspects of your business, consider the areas that need to be ‘fixed’, and go through the process of fixing all those issues before putting the business up for sale. You can only sell your business if someone is prepared to pay for it. If you can’t identify strong reasons – that can be easily substantiated – why your business would make a good acquisition, it’s likely to be difficult to find a buyer. Ask yourself the following:
- Is the business healthy? A business in trouble is difficult to sell and potential buyers are likely to wait until they can get assets at a knockdown price – although sometimes financial distress can be a motivating factor to a buyer who can see a turnaround opportunity.
- Are the basics in place to make it attractive? Buyers like well-organised businesses with strong management.
- Is there a good financial record? Buyers prefer a record of smoothly increasing profits with good growth potential.
- Who might buy your business and why? Can you identify potential trade buyers and a good reason why they should want to buy your business? Buying a business can be disruptive and expensive. Potential buyers may prefer to concentrate on their existing operations.
- Is a sale to existing management possible? Consider selling to your management team. Whilst they may only offer a modest price and/or have limited financial resources, a management buyout is usually far quicker to complete than a sale to a trade purchaser. You may prefer to pass the business onto long serving and loyal staff rather than a third party purchaser.
When To Sell Your UAE Business?
Selling at the right time can have a significant impact on the price you get for your business. You should plan well ahead so that you can pick the best moment rather than being rushed into a quick sale.
- When times are good: Timing will depend on your personal motivations and objectives but an ideal starting point is when your business is doing well and you are not desperate for a sale.
- Financial performance: Aim to sell when profits are increasing and look likely to grow further. Consider the impact of sales cycles or seasonal fluctuations in your business – you might have fuller order books at a particular time of year.
- Economic considerations: The general state of the economy – and your sector in particular – can have an effect. It’s easier for a trade buyer to fund a purchase when interest rates are low, and banks are keen to lend.
- Attitude and approach: You need to be in the right frame of mind and be 100% focused on the sale. It will be the culmination of years of hard work, a complex process, and emotionally challenging especially when you have still have to keep working to keep the business fully operational at the same time as the sale proceeds. Putting your business up for sale can’t be a passing fancy. You need to be serious about selling, have the right attitude to it, and be committed to following it through to its completion. You need to have the right attitude to the sale transaction process as well. The buy side is not interested in sellers with a ‘we’ve run out of steam… we don’t know what to do with it… we think someone else can do a better job’ attitude. Throughout the sale process, you will need to demonstrate that you are flexible and cooperative. A buyer will expect you to show that you would also be willing to spend some time after the sale helping the buyer get acclimatised to the business. If you think it will help the sale, be prepared to work for the company for a fixed period after the sale is completed.
- Think ahead: Preparation and planning is crucial to achieve maximum value and ensure a smooth and timely transaction process. The sale process will typically take 6 to 9 (possibly 12) months from when you first start formally marketing the business for sale. Therefore you need to start preparations 3 to 4 years before you actually want to exit. Make sure you understand what a future buyer will be looking for and what factors they consider to be attractive in a business. Potential buyers are looking to see consistent revenue growth, profits, and a long-term client base. The attractive factors of your business will be things that you would want in place even if you were not selling your business.
- Tidying up: Preparing your business for sale well in advance means doing some seller due diligence on your business to weed out any issues that could eventually cause an obstacle to a potential sale or adversely affect value and/or to engage in any restructuring of it to make it more attractive or increase value. Going to market when you are in ‘housekeeping’ mode is never a good idea and could seriously undermine your chances of success. Beware also of commencing the sales process and identifying a buyer too soon – you want to avoid being involved in the process of putting things right in the business when you have your potential buyer and their advisors observing and scrutinising your progress. Typical tidy up areas include managing unrecoverable debts, mitigating any potential claims/disputes, ensuring written contracts are in place with customers/suppliers, and having a sound business model / plan is in place.
- Tax considerations: The detailed timing of a sale may also depend on the tax consequences, and any forthcoming changes to tax rules, something to consult with your accountants and tax advisers on.
- 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 records: 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 organized/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 Enquiries
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