Advisers look out for shareholders' interests

Mar 3 2010 by Shawn Bone, The Journal

WITH more private company shareholders now considering a sale on the back of strong public company markets and potential changes in capital gains tax, it is important for vendors to consider carefully how to address this once-in-a-lifetime transaction.

Unfortunately, many would-be vendors simply wait for a buyer to make an approach rather than taking a proactive stance.

This is a risky tactic which puts the potential vendor at a disadvantage – failing to take the opportunity to groom the business for sale, often dealing with only a single bidder, being unprepared for meaningful discussions regarding a sale and, in some cases, the long-awaited approach may never come.

It is, of course, important for any adviser to fully understand the objectives of their client. In some cases shares are passed down to family coming through the business and no ‘wealth’ is realised in terms of a sale of shares.

Sometimes, younger family members will raise additional equity and debt in order to finance an exit for the older generation so that some wealth is realised.

In other situations, the whole family may decide to exit. For an adviser, a real understanding of the agenda and personal objectives of family shareholders, individually and collectively, is vital to delivering the right advice.

While value is often the main consideration of both the corporate finance adviser and their client, other objectives can be of vital importance. Sensitivity towards the future of the workforce as well as the business’s brand and culture, can be a key focus of some exit plans. These matters are often overlooked, leading to a divergence in views between buyers and vendors that can cause deals to abort. Once objectives have been established, the next stage is to assess valuation and construct a process that best delivers the objectives. The process can often be broken into distinct parts – planning, marketing and execution.

The first phase is planning . This is essential in order to ensure that all matters that impact on value can be properly assessed and used to influence a successful outcome.

Another important aspect is marketing .

This again will be driven by the family’s objectives; some shareholders prefer very targeted processes involving only a few buyers in order to maintain confidentiality while others are happy to undertake wider marketing as a means of maximising value.

While planning and marketing are important, it is during the execution phase that the experience of a seasoned adviser is demonstrated. This stage involves leading negotiations with buyers and understanding their desire to buy, maintaining tension and delivering the best deal for the client.

The objective for an adviser is to deliver the best outcome for shareholders; this often involves achieving the right balance of securing highest reward for shareholders along with realising non-value objectives, such as staff welfare.

Shawn Bone is a partner with BTG McInnes Corporate Finance