3 minute read
A trade sale, MBO or floatation…?
When you invite the professionals in, they will undertake a strategic review of your business. Is it the right time to sell? Should you delay the sale for a period to take advantage of better market conditions?
Are you planning on selling it to your existing management team, or do you prefer to look for a trade sale? Perhaps you are considering a stock market flotation. Each will require a different approach, and in the case of a stock market flotation, it’s likely to be a lot more costly and time-consuming.
The most straightforward is a management buyout, when the existing management purchase a majority share, or all of the company. Selling to the current management means that confidentiality surrounding the sale is easier, and companies purchased through an MBO have a greater chance of ongoing success because there is more business continuity. But it also means that the management must raise the capital to fund their purchase and many look to do this through private equity or bank loans.
Selling your company to a third party, as a trade sale, could be the cleanest break from the business and secure you the best price. But there are disadvantages here too. Customers and clients may not like the new owners and move elsewhere. This can be mitigated to a certain extent by the company owner agreeing to stay in the business for an agreed handover, or earn-out period, to ensure a smooth transition to the new owners. On the upside, the new owners may very well want to invest in the business and its staff, giving it a new lease of life.
Floating a company on the stock exchange is not for the faint-hearted and needs significant preplanning. A business seeking to float should have a strong growth strategy and a solid management team with a track record of generating profits. But employees can stand to benefit too if a company offers shares in the company on floatation.
A company floatation also raises the profile of a business and may be more attractive to investors who can then trade their shares in the future.
In 2013, Neill Ricketts floated his Cheltenham-based advanced engineering business on the London Stock Exchange’s Alternative Investment Market (AIM). It was a bold move as he had only launched Versarien two years earlier.
Versarien is developing the relatively new material, graphene. Discovered in 2004 by two University of Manchester researchers, Professors Andre Geim and Kostya Novoselov, graphene is the name for a honeycomb sheet of carbon atoms. It is the strongest known material, yet it’s stretchy. It can conduct electricity and heat incredibly well but is only a single atom thick.
Although scientists knew one atom thick, two-dimensional crystal graphene existed, no-one had worked out how to extract it from graphite. Andre and Kostya won the Nobel Prize in Physics for their pioneering work.
One reason that Versarien, which is commercialising the material, took the decision to float early was because it felt that to do so would inspire wider confidence in a new material. But it was a challenging project to achieve.
Neill takes up the story: “Floating a business with just six colleagues is stressful from the beginning but the biggest stress comes from the deadlines in compiling and verifying information. You have to do a lot of pitches, and everything is at risk right up until the point of completion, however it is achievable, as we demonstrated. Processes must be followed and choosing good advisers is crucial to guide you through. Having achieved success, it opens up the doors to lots of opportunities for substantial funding for growth.
“Since 2013, we have been disrupting the market using new techniques and been successful as a result. We have used new and innovative platforms to place shares including online private investor-focused models, with Versarien being one of the most successful companies. There is a lot of change in the traditional city, and I feel there is more to come.
“We have also been successful in looking at ways in which companies liaise with investors and have always tried to be creative. When these work it is a great feeling.
“In terms of lowlights, the volatile nature of the markets over the past 18 months hasn't been easy but we have used it to be more creative, taking adversity and turning it into an opportunity. In our case this has been by working with the government and highlighting the ways technology companies can help rebuild following some very challenging times for the country.”
