ISAMBARD

In 1996, on good advice, we set up two family trusts - one to own the family home and the other our long-term investments.  3 years later, we established Isambard Investments Ltd (originally called Pentangle for some long-forgotten reason) to hold our more venturesome investments.  At the time, the tax department was signalling a very aggressive attitude to venture investing even though they were long-term investments, so we wanted to isolate them from our more passive investments. In 2001, we added Isambard Ltd, to be the vehicle for my professional services as a director and occasional adviser. It all seemed like a good idea at the time, but the reality was unnecessary complexity and cost with multiple books to keep and tax-returns to file.  Moving forward to 2015, a saner environment prevails.  Isambard Ltd continues to be a useful vehicle for me - at least for now - but we have rolled all those asset-holding entities into a single trust, and we've shut down Is...

At a stock exchange presentation on the role of directors in takeover situations, we chatted afterwards about those rumour questions we all get from time to time: Is it true that you’re taking over XYZ? Is it true you’re being taken over by XYZ? Is it true that the business is for sale? Is it true that you’re about to make an acquisition? A lot of people fall into the trap of issuing an emphatic denial when there is no truth to the rumour, but fudging when there is some substance, and in effect confirming the rumour, which might have disastrous consequences. The best way to deal with rumours like that is to say nothing - always and consistently. Do it right from the start. Whenever I'm approached with some question about acquiring or selling a business, my answer is always the same: ‘It’s our policy to neither confirm nor deny such matters, and we apply this policy whether or not there is any substance to rumours.’ This gives nothing away, and it also says we follow t...

Online business coach Laura Humphreys ( Liber8me.co.nz ) writes a regular column - "The Exit Factor" - in NZ Business magazine, including side-bar tips from business leaders.  This month, it was my turn: There are three reasons why you should run your business with a potential sale in mind: Bad news. What if something happened to you tomorrow and you could no longer go into work? You can’t predict life, but you can build a business that would continue to prosper without you. Good news. What if an amazing lifetime opportunity came along tomorrow? Could you free yourself to seize it quickly? Or have you got an ‘albatross’ around your neck that would take months or even years to wind up or sell? No news. Even if nothing happens, you'll have built your business properly. You'll own a great business that attracts more customers and makes more money, And when you do decide to sell, you'll be in the most empowering position of naming your price! It’s all abo...

Today's DominionPost featured an article by Tom Pullar-Strecker on technology firm 4RF [Communications] currently in receivership.  Pullar-Strecker cast aspersions on other technology firms, including my old company Deltec: . .. Telecommunications equipment manufacturers in the capital have failed to exude the Midas touch. Antenna-maker Deltec – New Zealand's "Supreme HiTech Award Winner" in 2000 – closed in 2002 with the loss of 30 jobs... Read in the context of the 4RF [Communications] receivership, this wrongly portrays Deltec's departure from the Wellington economy. Strictly speaking, it was Andrew Corporation's NZ R&D unit that closed.  Deltec was very successful, peaking at over 200 staff and contractors, with high growth and high profitability. That success attracted Andrew Corporation to acquire Deltec's operations and technology in 2001.  Andrew Corporation quickly transferred manufacturing overseas, but Deltec had pla...

First, you have to put aside your prejudices and the tone of media reports. Although drongoes will occasionally fluke their way to the top jobs, they’re exceptions; the competition is too fierce. That doesn’t make CEOs perfect human beings - they can be as worthy or as venal as the rest of humanity and some CEOs do work the system to undue personal advantage - but most are decent enough people and good at what they do. But why do they command such big bucks? A CEO capable of running a $1 billion company is a pretty smart cookie. They could easily run their own business. What would be a reasonable salary and bonus to persuade them to run yours instead? What’s the alternative for that individual? Now this may come as a surprise to the wage slaves among you, but owning a $10-15 million turnover business is, well, while not easy, also not impossibly hard. Private equity firms are keen to help good executives buy good businesses. (Actually, an executive capable of running a $1 b...

It’s time to wrap up the series “ Private business exit: 16 questions to develop a plan “. To recap, our 16 questions are: Why are you selling? What exactly does your business offer the world? What are your goals and dreams - inside the business, outside the business and after the business? How attractive is your business, and what’s wrong with it? Who are your key people, customers, suppliers and partners, and are you vulnerable to their departure? How do you make yourself unnecessary to the business? Which buyer types should you target? Who would want to buy it and why; who should, but doesn’t, and why not? Should you sell gradually or all at once? Should you sell to family and/or staff? What should you do to improve your business attractiveness? What should you do to be ready for sale? How do you manage the sale process? Part I, Part II What’s in a good sale agreement for you, and for your buyer? How do you ensure a successful transfer? How much should you be involv...

Continuing our series on selling a mid-size privately-held business , in Part I of question 13  we looked at some of the choices for the actual sales process. Now let’s look at a typical process (although there are many variants): Contacting the potential buyers, often with a teaser (written or verbal) which doesn’t identify the company or give too much away, just enough to get them to sign a confidentiality and good behaviour agreement in order to get the next level of information. Sending out a brief 2-4 page overview of the business, to get expressions of interest in bidding and, sometimes, proof of substance that they have the wherewithal to buy the business. Sending out a detailed information memorandum describing the business, with ample details to enable an indicative bid to be made. Selecting a short-list of bidders to enter negotiations. This is where things can get tricky, because indicative bids are non-binding, and some competitors can make high bids just to get...

In  my series on selling a mid-size privately-held business , we’re ready to move on to the actual sale process.  Let’s remember here that we’re trying to sell a mid-sized business, which I define as 50-500 staff. Selling a coffee shop or a small IT development business might follow similar principles, as might selling a major listed corporation, but there are some differences in approach, complexity and regulatory processes. Likewise, I won’t today cover selling shares in the business by way of a public offer - that’s a very special process, requiring a separate series all by itself. Agent or DIY Most businesses are sold via an agent, such as a specialist business broking firm (less useful, the larger you are), merchant banks (either boutique firms or arms of major banks), or chartered accountants. If you’ve never sold a business before, you’ll probably do best if you engage a reputable agent. The process is fraught with legal pitfalls, and a good agent will help you a...

Last time in this series on selling a mid-size privately-held business , we asked what should you do to improve your business attractiveness. This time we’re asking what should you do to be ready for sale. That might look like the same question, but it isn’t. This is about housekeeping: Tidy the books 1: Clean up those overdue debtors and creditors. Get rid of that old stock you know is never going to sell. The buyers will pick up that it’s junk, and may even give it negative value because they’ll have to get rid of it. Tidy the books 2: Get your personal business out of the business. The Aston Martin, the boat, that club membership, the home entertainment system that you euphemistically call your home computer. Sell them to yourself if you still want them (ask your accountant for advice). If your mistress or toyboy is on the payroll, it’s time to make other arrangements for her or him. (I’m not joking, I’ve seen it). It will make your numbers look better too. Tidy the books 3...

In this series on selling a mid-size privately-held business , we’ve asked a lot of questions so far.  Hopefully, the discussion has thrown up lots of ideas; probably far more than you can hope to take action, probably some that are mutually exclusive. But this question isn't about what you could do; it's about what you  should  do. I’m reminded of the late Sir Peter Blake’s famous mantra, “Will it make the boat go faster?” If any proposed idea, action or purchase wouldn't result in the NZ America’s Cup challenger’s boat going faster, he wasn’t going to waste time or money on it. Likewise you need to assess all the ideas you’ve generated against some criteria to determine if they are worth pursuing: How much increased value will this add to our net worth? How well does it fit into our business? How much will it cost? How hard is it for us to to do? How long will it take? How much of my team’s and my time will it take? How likely is the projected o...

In this continuing series of questions on selling a mid-size busines s, last week we asked “Should you sell gradually or all at once? Now we turn to the question of whether or not you should sell to family and/or staff. I’ll repeat a postscript from an earlier question. I’ve made an assumption here that you are selling. Some people want to gift their business (or a large part of it) to staff, family or charity. Angus Tait in New Zealand, and John Lewis in Britain are classic examples. I would be foolish to try to come up with a general approach for those situations. Each is unique and requires a unique solution.  Likewise, it isn’t my intention to explore staff ownership schemes as part of a reward and retention programme. If you do have such a scheme, then, as with any shared ownership, you should arrange things such that any future sale is not hostage to minor shareholders (through compulsory purchase clauses, drag-along rights and similar mechanisms). Returning to our ...

One of the questions to consider when you’re thinking of selling a mid-size business is “Should you sell gradually or all at once?” There are many reasons to not sell all in one go; eg.: Your buyers insist you keep some skin in the game as proof that the business is as good as you claim (eg. if you are going down the IPO route and there are no other current shareholders staying on). Your buyers can’t afford to buy it all yet. You want to start selling but you think there’s more upside you want to share in. You want to share in some of the gains that your buyers will bring to the business. You’re not ready to give up control yet. You want to keep a stake in the business you built. Of course, there are also many reasons to sell it all at one time; for example: Clean transfer of control. Easier integration into the buyer’s other businesses. Maximising price (100% control usually is worth more proportionally). Minimising administrative hassle for you and the buyer. Minimis...

In my previous question in this series on planning for the sale of private businesses , we explored the types of buyer who could be interested in acquiring your business. Now we need to get down to exactly who would want to buy it and why; and equally importantly who should, but doesn’t, and why not? This is about understanding what could motivate a buyer. If it’s a trade buyer, then you are likely to have a very good idea of who they are and what drives them. If it’s financial buyers you’re targeting, you may know some specific possibilities, or more likely you’ll be working with a broker who should. In identifying specific potential buyers, and why they are likely or not to be interested in your business, you can uncover ways to develop your attractiveness, and to design your sales campaign. For example, when we prepared to sell advanced antenna manufacturer Deltec, we had several potential buyers in mind who would want our technology. We initiated an IP suit against the smal...

Earlier this year, I wrote about the pros and cons of external investors, in the context of firms seeking expansion capital, but only touched briefly on exit options. In my series on planning for the sale of private businesses , we’ve now reached the point where we need to think about the types of buyers you might approach. Note that I’ve used the phrase “type of buyer.” You might well have a specific potential buyer in mind, but let’s first spend a little time being more general in our thinking. There may be a class of buyer which you hadn’t considered. Let’s think of some possibilities: Trade buyers Your immediate competitors Potential competitors in other geographic or vertical markets, who might want your markets, products, processes, people or sources of supply Players in related product markets who might want to add your speciality to their portfolio Any of your suppliers who might want to move further down the value stream Any of your customers, distributors, service ...

Continuing our series of questions on planning for the sale of private businesses , we now turn our attention to you, the owner. For some private businesses, the owner is also the chief sales rep., chief designer, chief buyer, etc., or some combination of these roles. If the business can’t work without you, why would anyone buy it from you? Few owners stay on for ever after a sale, so if your business is dependent on you, you need to think about building up capabilities in your people to do the things you do, before you put it on the market. Your role as chief executive of the business is a different issue. Some buyers like acquiring businesses with salaried general management in place. Some buyers may want to appoint their own CEO/managing director/general manager (possibly one of your people, one of theirs, or someone new). It’s hard to predict, but worth thinking about. By the way. despite having made yourself unnecessary, a buyer may still insist that you stay on after a sa...

Continuing our series of questions to help you plan the sale of your business , what I’d like to ask you next is “Who are your key people, customers, suppliers and partners; and are you vulnerable to their departure?” Is there anyone who is vital to the business because of their knowledge, relationships, etc? What about you? Or key sales people, or engineers, or a buyer, say? I’d probably avoid tying a key employee into an unusual special contract. That’s for the buyer to offer if they so choose. A special deal may even lower the business value. But can and should you build up other people to share the work and spread the risk? One tricky issue I’ve seen in two otherwise very good businesses I’ve considered buying is religion: staff who are all members of a particular religious sect, and likely to leave en masse  (and likely set up in competition) if the buyer isn’t also in the sect. I didn’t buy those businesses, and politely suggested to the owners that they ne...

We’re going through a series of questions to prepare for selling a privately-owned business . Okay, it’s time for some serious realism. How attractive is your business, and, while we’re at it, what’s wrong with it? Tell me about its good and bad points. We’ve all done SWOT analyses: strengths, weaknesses, opportunities and threats. That’s all this is. Just a word of caution though. You need to be specific. I’m fairly sceptical about most SWOT analyses. For example, nearly every company lists one of its strengths as something along the lines that “we’ve got great people”. Actually most companies have great people, because people are mostly great (I’m very uncynical about that) so where’s the strength here? What are we really talking about? Likewise, people can be both over-critical and under-aware about weaknesses (listing every minor thing that could be improved while ignoring big problems like weak people in key roles). We can explore whether or not opportunities should b...

In my occasional series on private business exit , so far I’ve asked you why you want to sell, and what your business offers the world. Now for a question that should be asked of the owners in any private business strategy exercise, but rarely is. What are your goals and dreams - inside the business, outside the business and after the business? I’m not looking for warm fuzzies; I’m looking for realistic aims that you still want to achieve and for which you are prepared to sweat and sacrifice. They may be purely monetary; they could be associated with status or scale or time or experience; anything really, as long as it’s what motivates you. These are not things people always admit, so a high degree of honesty and trust is needed for this process. One British guy I know had the dream of achieving a knighthood because it would have made his mother proud (his parents had started married life very poor), and business followed by personal philanthropy was his way to get there. A New...

In my series of 16 questions to develop a plan to sell your private company , I first asked “Why do you want to sell?” Now I want to know about your business: what exactly does it offer the world? If you can’t articulate your market offer, how do you expect a potential buyer of your business to understand what it does, and by implication why it is an attractive business for them to buy? Long-time readers will be familiar with my market offer concept. It isn’t an advertising jingle. It’s a statement that you and your team use to sum up just what it is you do, to guide you in developing products and services, promoting them, and fulfilling your market offer: What your products and services are, why (and what not and why not). Who your customers are, why, and why they should want your offer (and who isn’t and why not). How and when you do things and why (and how you won’t do things and why not). Where your customers are, where you do things, etc (and of course where not). You ca...

So why do you really want to sell your business? There are actually many possible answers to this opening question. Here are a few of the more common ones, often answering other unspoken questions: You don’t want to sell any time in the next 10 years, but you’re making sure that if you if and when you do, you’re able to do so. You don’t have any plans to sell any time in the next ten years, but someone might make you a great offer and you’d like to be able to respond effectively, without throwing a spanner in the works. (This is smart – many businesses go off the rails trying to handle the sales process, expected or unexpected). You’re planning to retire sometime in the next few years and you’d like to sell it for the best possible deal. You need to retire immediately and you need the best possible deal You want out, but you’d like to keep a stake for old time’s sake and to show your continued faith in the business. You want some cash for other things, but you’d like to stay in c...