PrintSpeak survival guide: Accelerated business sale

nil recessus carborundorum

success story...

accelerated business sale

This week's success story is about a mid-sized B2 commercial printer sliding into trouble. When the company decided to put itself up for sale, it had only a few weeks to pull off a deal

Although basically sound, this 19-year-old business had been experiencing trading difficulties and was beginning to turn to "funding of last resort".

The company had a sound structure – its £1.5m turnover incorporated a gross profit margin of around 40%, and as well as an established base of litho customers it had already ventured successfully into the digital arena. The staff were well-trained and the company had a good customer service ethos. But a general lack of business momentum, no marketing and a reduced turnover coming out of the Christmas period all combined to make business difficult.

Injecting personal capital

The company’s two directors – the only shareholders – had injected personal capital into the business. One director even put £10,000 on his personal credit card to buy paper.

The directors had ruled out selling the business, thinking that it would take too long; and they were avoiding administration, thinking they didn’t have the money to pay for it.

We were like rabbits in the headlights. We knew we were going down but we didn't have time to turn things round

They were worried, too, by the changed legislation governing wrongful trading – they knew they were basically trading insolvently, and it was only a matter of weeks before they were forced into closure. And they were also concerned about industry thinking on pre-pack deals, and about their ability to buy raw materials following such a pre-pack.

Basically sound
“We were like rabbits in the headlights,” says one of the directors. “We knew we were going down, but we just hadn’t got a clue what we could do about it. We were basically a sound company – we just didn’t have time to turn things round.”

The company contacted Richmond Capital Partners to ask its advice. Richmond responded by carrying out a review of the key problems such as the company's current trading position, its working capital needs, personal guarantees and the bank's position. At the end of this period - a few days - Richmond recommended an accelerated sale process

Securing the future

“They told us they could find a buyer although our aspirations would have to be realistic," says one of the directors. "The best we could hope for was to relieve ourselves of our personal guarantees, get a minority stake in the new venture and draw a salary at a reasonable commercial level."

Richmond Capital Partners introduced a potential buyer to the directors. This company was another B2 printer based 40 miles away; it had no capacity for growth and, amazingly, was turning work away because of this lack of capacity and so was an excellent fit. They bought the struggling printer with a view to running the two alongside each other as sister companies. All the staff were retained, including the directors, who were each offered a share in the restructured company.

Distinct customer bases

Fortunately there wasn't much crossover between the two companies' customer bases, and the selling directors received enough money at completion to pay off their credit card debts and release them from their personal guarantees.

what is...

accelerated business sale?

Accelerated business sale can put a struggling business back on track, says Paul Holohan, chief executive of Richmond Capital Partners

An accelerated sale is exactly the same process as an ordinary sale, with the obvious difference of being accomplished in a shorter timescale – typically weeks rather than months

An accelerated sale is only preferable to a normal sale where there is a specific urgency - for instance, because of ill-health on the part of an owner, extreme difficulty in trading conditions, the expiry of a property lease, the activation of a buy-back clause on a major piece of equipment

It’s important to think ahead – an accelerated M&A has a better chance of succeeding if it isn’t done at the last possible minute. The earlier you begin to plan, the more options you’ll have

Because the process of due diligence – by which a buyer assesses the viability of a purchasable business and its history, liabilities and revenue streams – is shortened in an accelerated M&A process, it is important for the selling business to have up-to-date and accurate records of its current situation

To sell a business quickly, the seller needs to have information on the key indicators - costs, sales, margins - and to update this weekly

If you’re thinking about selling your business in this way, think twice about refinancing before you do the deal, as some buyers will be looking to use these assets to finance the acquisition itself. The seller should be aware if accepting payment by instalments, as these payments may go unpaid and the owner's money is at risk. However, some loose equity in the assets is an attractive feature for a potential buyer

who can benefit from...

accelerated business sale?

If your business is basically sound, but experiencing short-term difficulties, then an accelerated sale process could be possible

Companies without nasties hiding in the wood-shed are ideal targets for accelerated sale: no pension holes, no pending court cases, no breaches of employment law or even software licensing, no significant HR issues

It also works well for companies with a good basic structure to their balance sheets, and some releasable equity in their assets

Debt is not necessarily a deal-breaker. The right acquirer will balance a debt against the complement to its own business, and the fact that a good acquisition will bring in clients and add revenue streams

Neither is being in administration a deal-breaker. However, in current business thinking there can be a great hostility to pre-packs set up out of administration with suppliers unwilling to continue to supply raw materials. This needs to be borne in mind

Welcome to the PrintSpeak Printers' Survival Guide - helping you to ride out the recession

The pages of the printing trade press have recently read like a Domesday roll-call of print's great and formerly glorious. Who could have predicted the failure of Borcombe SP, Kelvin Print Group, Quebecor, Capital, Printhaus, Butler and Tanner, Celloglas and more? With margins on print lower than they've ever been, the current global economic crisis is magnifying the cracks in every print business model.

But for every bad news story, there are plenty of success stories. Here at PrintSpeak, we decided to pull together a weekly newsletter looking at printers who recently hit a sticky patch - and what pulled them through. We hope it will provide our readers with food for thought. A struggling business is not necessarily a failing one - and knowing who to call is half the battle. In the coming weeks we'll be looking at subjects including factoring, debt collection, credit management, VIAMBOs, cost rate reviewing, credit insurance, financial restructuring and more - building a library of business know-how and giving you the contacts and knowledge to ride out the recession.

Karen Charlesworth
Publisher, PrintSpeak
karen@printspeak.co.uk