Why you should buy before you sell

When owners are planning to sell their business, their first action is often to look at increasing profitability by cutting costs. Not a bad plan you may think with most businesses selling at a value based on a multiple of maintainable profits.

By Tim Mills, corporate finance partner, PM+M

However, depending upon the timeframe within which a sale is being planned, making one or more acquisitions may be a better strategy.

There is a wide variety of reasons that underpin the acquisition of a business by a third party. The key to ensuring that your business is the chosen target above other similar businesses is to demonstrate significant benefits compared to the competition.

However, it may not be possible to develop these differentiators with internal resources and acquisitions may be necessary. These could be at a small level including purchasing new customer lists or the tooling for a few new products, rising to the acquisition of another business.

Whatever the transaction, time and planning must be invested, with the eventual sale of the business remaining the focus.

We spend a lot of time with clients thinking of selling their business. We help them focus on the key value drivers of the business, together with areas of potential weakness. We develop a plan to enhance the current value whilst reducing or removing the areas of concern. Time is often the pressing issue and it may transpire that the plan can be executed more effectively through one or more acquisitions.

Clearly financial resources must be available but this would form part of the planning process. The key point that requires justification is whether the enlarged business will be of a greater net value to potential acquirers and does this uplift in value support the overall financial and emotional costs of making an acquisition prior to selling. The answer is rarely a clear cut yes or no but the option to acquire should always be at least considered as part of the overall exit plan.