In 2010 I sold my Australian Ad Network business ( PostClick ) that I’d started in 2002, to an emerging SE Asian tech player (Komli Pte Ltd ). Here are 3 lessons I learnt along the way during that process.
PostClick was an Ad Network – i.e. – an aggregator of websites that it acted as a sales agent for in the market selling ad space and with the increasing importance of digital as an advertising medium and with the emergence of major overseas players entering the Aussie market, local players in this space started to gradually get sold off throughout 2008/2009.
With this in mind and being acutely aware of the need to grow my business quickly in order to compete effectively, I started to look around for financing options to assist my growth. Since inception we had grown organically in line with market trends and rising ad spend patterns, but being primarily a services-based model with little IP apart from exclusive sales contracts with web publishers and strong relationships with ad agencies and certain clients, funding was not exactly easy to come by, nor was there the plethora of options which seem to exist for start ups today.
So, if your business is of a reasonable size and you’re in the market to sell, here are a few points, based on my experiences, you need to consider:
Hire a reputable and trustworthy Corporate Advisor
The business sale process can often be a long and torturous one and so having a trusted advisor on board can help alleviate the pain and provide you with someone who is better skilled in negotiating a successful outcome for you. Having said that, it’s important to work with one that you have a high degree of trust in and an alignment with.
As the GFC in Australia took hold in 2008, I signed up somewhat reluctantly to the first advisor I engaged with; I say reluctantly because at this time I hadn’t fully committed myself to the sale process and truth be told had felt somewhat pressured into signing them up on an exclusive retainer basis. Whilst the mood was not as sombre as in the US, UK or Europe it was still fraught with uncertainty and with this in mind I had decided that it was maybe an appropriate time to cash out if I wasn’t able to raise finance to accelerate the growth of the business.
In hindsight, it’s obvious that if you feel you are being pressured in to signing something it’s not a good indicator of a mutually beneficial working relationship, so my advice to others in a similar situation would be to listen to your gut instinct and ask yourself would you trust yourself to buy a used car from this person or their business.
It’s a useful litmus test to apply because at the end of the day your advisor is supposed to become your most trusted ally in selling your business. Your business is an asset – just like your house or any other investment property or share portfolio you may own, and as such it should be treated as an investment. In selling your house you would engage a real estate agent you knew or trusted and in choosing a stock broker/investment advisor you would again apply the same criteria.
Advisors are essentially sales people and their job is to spruce your business – whether that be for sale or financing and so they have a vested interest in achieving a good result for you, but they also have a much stronger interest in achieving a result of any sort for themselves. It is important therefore to ensure that the result they want to achieve for themselves is aligned with the result you want to achieve for the sale of your business.
As it was we were unable to flush out any suitable offers and we abandoned the process; fast forward though to early 2010 and the advisor I engaged then was much more aligned with my thinking, which along with the improved economic conditions meant we were able to achieve a successful result.
Valuation Methodology
One of the difficulties in valuing a business for sale especially in an emerging sector of industry is the valuation methodology employed in arriving at a value for it and the fact that whilst you may compare the sale price of a similar business with yours and use that to arrive at a determination, there is not a huge amount of information available in the market to arrive at a more definitive value of its worth.
The details of many sale transactions are kept private and in many cases are tied into earn outs that are attached to future sales and profits – not all of these future projections actually materialise and so the value of a sale is often less that maybe initially reported .
The contrast in selling a property though is quite marked; there are many sources of historical information that will tell you what a property last sold for and what its current value maybe worth. There are way less sources of information that will help you arrive at a value for your business & whilst EBITDA, Annual Growth %, Revenue, Market Share & Sector are all major factors that are taken into consideration in pricing a business , a lot of the pricing is subjective & determined by the perception of how much the acquirer needs to acquire your business.
For example: is the acquirer an overseas player looking to gain a foothold in the local market?... Are they another local player looking to consolidate their market position with a complementary offering, or do they wish to diversify revenue streams and gain market share with a different offering?... Or do they simply wish to shut you down and remove competition?... The question you really need to know the answer on is - why do they wish to acquire you?, and the answer they may give you is not necessarily the real reason they wish to purchase your business. It is therefore your job to research and find this out ahead of any sale going through.
Getting your business "Sale Ready"
One factor often overlooked in selling a business is the sheer amount of time and effort taken up in getting your business “ sale ready.“
In preparing an IM (Information Memorandum) there needs to be a solid overview of the business and its place in its sector along with an appraisal of the opportunity and why the business needs funding or is a good buy for a purchaser. Solid financials for the last 2-3 years at least need to be prepared and accurate revenue projections need to be presented that factor in not just known probabilities but also that make allowance for unknown possibilities and mitigating factors .
Whilst your corporate advisor will help you flesh all this out with the assistance of your internal Accounts & Sales teams, at the end of the day you will need to be actively involved. As such you need to consider the impact on your own time and how that affects your ability to do your job in managing the ongoing operation of the business. In my experience I found it a major distraction and due to the length of time it took to complete, it also became known within the company that the business was up for sale. In a relatively small business it is often difficult to mask what is happening in this regard and it then becomes a challenge to keep employees motivated and on side.
The fear of a change in this regard can often result in employees looking for opportunities elsewhere so it becomes imperative to keep your team onside with you as the value of your business to a purchaser will in many cases depend on the quality of your team, their internal cohesion and their ongoing employment with the business.
In some ways, I was lucky to be the only shareholder and director in my business when I sold; it meant that I didn’t need to confer with a business partner or another shareholder as to the value of the business and what I wanted for it. On the flip side it also meant that I didn’t have another person equally vested in achieving a positive outcome that I could bounce ideas off or discuss the acquisition with. In hindsight, I would have been wise to have at least an advisory board in place when I started the sale process and this is something, I would recommend to any owner(s) of a reasonable sized business when considering divesting or raising finance.
About Andrew Lockwood:
Ex Founder & Managing Director of the PostClick Ad Network, sold to Komli Media in 2010. Currently both Managing Director of TopMedia Global – www.topmedia.com.au - an outsourced Ad Operations provider working with Publishers & Agencies alike; and Freelance Digital Consultant working with Publishers & Networks to better monetise their web properties.