Thursday, November 04, 2010 | Posted by: Fiona Cullinan
Categories: Financing , Media sector | Tags: business, tax, risk, debt, corporate finance, value, Story of the Deal, disposal, selling a business, case study, negotiation, Ali Sharifi, RDG, grooming, warranties, United Business Media
Selling a business is usually a one-time-only deal, so owners are often unaware of what to expect, the potential pitfalls or how to get the most out of the sale. In our new series telling ‘The Story of the Deal’, we go behind the scenes of our work to explain what’s involved. Our first case study is RDG’s £9.3 million sale to United Business Media in August 2010…
Ali Sharifi, Corporate Finance Partner at Grant Thornton’s Manchester office, talks us through the players, the process, the key stages of disposal and offers some advice for those who are thinking of selling up.
1. What’s the story?
We recently advised the vendors of The Route Development Group (RDG), headquartered in Manchester, on the disposal of their shareholding to United Business Media for £9.3 million. We were approached by the owner-managers of RDG to advise them on the sale through a connection with one of our colleagues in the tax department who knew one of the owners.
2. Who were the main players?
RDG operates a global series of aviation route development and network planning events, as well as supporting consultancy, events and online commerce operations. It was seen as a strategic fit to UBM’s Aviation division, which operates in a similar space. There was interest from another large corporate in the sector, which led to competitive tension between the parties.
3. What was the reason for the disposal?
The main shareholder was looking to leave the business and move on to something different, having built it up from a start up in 1995.
4. How was Grant Thornton involved?
Our role was to act as RDG’s lead adviser, which involved guiding it through the process, leading negotiations on its behalf and project-managing the process to a successful completion – while letting the owner-managers continue to run their business. Many people only go through a process of selling their company once in their life and are not aware of what is involved and the potential pitfalls to avoid. This is where we can really add value and bring our experience and expertise.
5. What stages are involved in a disposal process?
The first key stage is typically to groom the business for sale. This will include analysing historic financial information to determine the true profitability of the business (excluding one-off costs, etc) and preparing forecasts that would stand up to intense scrutiny. We will also discuss the right time to sell based on the market conditions.
The next stage is to identify the potential buyer group while preparing a sales document that outlines the opportunity and what the company does. This is then distributed to the selected buyers to solicit offers with a view to agreeing heads of terms (main commercial terms of the transaction), which will be followed by due diligence, the drafting of legal documents and hopefully a successful completion at the end of that.
6. What issues are likely to arise during a disposal?
Each of the stages has its own set of challenges. These range from ensuring that the documents prepared are accurate and reflective of the business to negotiations to make the buyer aware of the true value of the business (and increase its offer). Other examples of these negotiations include legal discussions around protection in warranties and the definition of debt, which is typically deducted from the purchase price.
A lot of our role involves project-managing the various parties involved, eg, the lawyers, the due diligence providers and, where relevant, we will introduce our tax team to assist in the tax structuring as well. This is where a firm like Grant Thornton is able to stand out by providing specialist advice from other parts of the firm to address tax, accounting and pensions issues.
7. Were there any particular challenges in this case?
Of course, each deal has its own challenges, and deals can fall over for a variety of reasons. In this case, we received two very different competing offers, which was a nice challenge to have. Part of our role in this was to distil the offers to make sure we were comparing the offers on a like-for-like basis, rather than comparing ‘apples with pears’.
8. What was the end result of the deal?
We successfully completed the deal in mid-August 2010 when RDG was bought from its private shareholders for £9.3 million by United Business Media. Mike Howarth, RDG’s founder and CEO, was impressed with our service, and commented at the time: “The sale was a particularly challenging situation, with two blue-chip corporates each offering very different options. Grant Thornton not only effectively guided us through the normal ups and downs of any disposal process, but also helped us make the optimum choice.”
9. What advice do you have for companies facing a sale of this kind?
Please speak with your advisers early. The earlier we can get involved, the more we are able to assist with the preparation or grooming process for sale. We can advise you on the right time to transact based on market conditions, allowing you to groom your business, minimise potential for pricing issues, and maximise value for your business.
10. Where can they get help?
We would be happy to speak to people who are interested in this. Grant Thornton has an excellent track record in advising on similar transactions. We are currently ranked number one advisers by deal volume for the first half of the year, having won top place in 2009 and 2008. We welcome anyone considering a sale to ask for any member of the Corporate Finance team in your local office who will be more than happy to discuss your specific situation. Or visit our Corporate Finance page for general information.
Image: © Lars Plougmann, 2008
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