How to sell a business: IPO and trade sale veterans share their lessons

Successfully operating a business is one thing, but selling it privately or preparing to list on the ASX requires a whole different skill set.

This was the message that emerged from a roundtable held in December by PwC Private Clients and BRW, as part of their ‘Aspire’ program for private businesses.

Notable Australian business operators shared their experiences on how to effectively prepare a company for a trade sale or IPO, while advising on how to avoid the pitfalls that will inevitably present along the way.

What also became clear is preparing a business for sale or an IPO is an arduous journey, that generally takes several years rather than months. It can be a steep learning curve involving multiple financial, planning and legal parties to get a deal done.

Swapping experiences and insights at the roundtable were:

- Swisse Wellness chief executive and part-owner Radek Sali, who in September helped sell 84 per cent of the company to Hong Kong-listed Biostime International Holdings.

- Integral Diagnostics chief executive John Livingston, who in October oversaw the radiology group’s listing on the ASX.

- Advent Private Capital executive director Symon Vegter, whose firm remains a significant shareholder in Integral Diagnostics and assisted it with its initial public offering.

- Capi Sparkling and Lucy Folk Jewellery chief financial officer and chief operating officer Emma Evans. Working for a group of companies associated with Melbourne entrepreneur Pitzy Folk, Evans in 2014 assisted the sale of Map Coffee to India’s Tata Global Beverages.

- AussieCommerce co-founder and managing director Adam Schwab, who has gone close in the past to listing the ecommerce business, and is actively considering options.

- PwC Private Clients partner Alan Elliott, who provides due diligence to either vendors or buyers in deals, primarily among mid-market private businesses.

It took three years to sell 84 per cent of Swisse Wellness for $1.67 billion to Biostime. Swisse Wellness chief executive Radek Sali says cultural integration was a key factor in choosing the buyer, as most Swisse employees would continue working under the new owners.

“The main thing was having the right people around us to get the deal done,” Sali says. “We met the eventual partner we chose four years ago, so it was quite beneficial to have a connection with that organisation.

“Our partner saw value in not only purchasing our business, but bringing our capabilities into their structures. Swisse being prepared to stay on as a management team shows we were open and flexible.

“It’s much better doing a transaction with tailwinds rather than headwinds.”

Sali says an IPO was an option, but a trade sale appealed more because of competitive tension and where Swisse was trending and trading. Sali didn’t believe Swisse was IPO ready, so a trade sale was the faster option.

Sali says an IPO may not be an option for smaller and mid sized businesses, so operators need to be much more focused about their exit and know the trade players that may be prepared to buy at a premium. Smaller businesses will typically be a bolt on for a larger corporate.

While the sale process is a non-core project, too many businesses focus on an exit rather than the underlying reasons for an exit.

The roundtable heard it was vital to guard against a lengthy sale process stripping company value by negatively impacting the performance of the core business.

Advent private capital executive director Symon Vegter says it’s a distinct advantage to be exit ready at an early stage of the sale process to avoid or minimise disruption to the core business.

“Management teams can become extremely stretched by a sale process, which can consume a lot of management bandwidth while they’re trying to operate and grow a business,” Vegter says.

“You have to keep focussing on the business, so you can deliver results for the next investors or party after the deal is done. The key is to be exit-ready by completing key preparatory steps and having necessary information in place before you start. A sale process is not the time to discover issues and problems. ”

Aussie Commerce managing director Adam Schwab says he doesn’t focus on an exit or liquidity event. “Ultimately, we want to focus on running the best business we can,” Schwab says. “Our view is the better the business, the easier it is to sell.”

Integral Diagnostics hired an IPO co-ordinator and other specialists prior to listing on October 21, 2015.

Integral Diagnostics chief executive John Livingston says the IPO process involves a massive amount of work outside operating the core business.

“Make sure the IPO process isn’t going to be a distraction or deter from your core business, which is ultimately the reason people are attracted to it in the first place,” Livingston says. “Building capacity within your team is such a critical part.”

Livingston says keeping the data room up to date from an early stage enables businesses to take advantage of opportunities as they arise. “Building a data room from the get-go is a lot of work,” he says.

A decision to withdraw from an IPO should be taken early in the process. Livingston says: “As you get towards the back end, you really need some compelling reasons to pull the pin.”

Livingston says withdrawing from an IPO isn’t just about the money already spent, but the way a business has been positioned in the market after doing road shows and bringing investors up to speed.

After withdrawing from an IPO, analysts and investors will be carefully scrutinising the company’s performance given they know the numbers. Investors and analysts will be most interested to see if a company can execute its strategy. Livingston suggests staying private for at least 12 months after withdrawing from an IPO.

PwC partner of private clients Alan Elliott says every owner will “ultimately exit their business in some form or another”.

Elliott says putting process and methodology in place prior to a sale will maximise the returns on investment for owners.

“In terms of preparing your business for sale, it’s not just about dressing it up to actually make it look like what buyers might want,” Elliott says.

“Typically now, buyers are more sophisticated than they’ve ever been so you can’t really hide unsustainable risks or short term cost cutting from them. So the business has to be long term sustainable in terms of cost base, growth plans and the top line trends to actually support valuation, views and risks.

“A common theme is the benefits of doing your homework. Continue to maintain your data room. Do due diligence on your own business to ensure when the right time comes, you’re ready to go because the markets can go hot and cold really quickly.”

Capi chief financial officer Emma Evans recalled selling Map Coffee took two years amid tough negotiations and contract changes.

“We were surprised how long the sale took,” she says. “It was a huge learning process. Careful preparation prior to a sale will enhance value during final deal negotiations. Ensure top advisors are on your team. Selling a business and operating it at the same time is a delicate balancing act.”

With Michael Bailey

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