Last time we looked at some hurdles owners of veterinary businesses have to overcome in finding their way to the exit door. However, once you have one hand on the door handle, what can you expect to follow?
Practices that have been on a “buy and build” strategy will be familiar with the acquisition process, but many owners will only ever be involved in one sale process.
Business owners in this situation often rely heavily on friends and contacts that have been through the process before, but, in many cases, those people can paint an unflattering picture.
Parts of the process
So what is actually involved? Is it as time-consuming and stressful as many claim?
Generally, the process can be broken into six main phases:
- pre-due diligence
- due diligence
- documentation
- pre-closing
- closing
- post-closing
In this article, we look at the first phase and how to deal with some issues that arise.
Pre-due diligence
Headline price
Before letting a potential buyer inside your business, it is important to establish at the outset the price range they are prepared to pay, or at least how the price will be calculated.
From a combination of publicly available financial information and additional (non-sensitive) financial information supplied by the business owner, a potential buyer is usually able to give an indicative price.
However, a number of assumptions are likely to have been made when calculating this price and it will be important for the practice owner to understand what they were.
Structure
In addition to the headline price, how and when that is payable should be discussed at an early stage.
As an owner, you will usually want to get as much of the price in cash as soon as possible. A buyer will usually look to defer paying as much of the price as possible, particularly in a veterinary business where personal relationships between the vets and clients are key.
Given the number of issues that need considering if payment is deferred or subject to an earn-out (in which case, the price depends on the post-completion performance of the practice), it is vital a business owner understands whether this is the buyer’s intention and engages early with advisors to understand the issues in more detail.
Know your buyer
Every business owner understands a buyer will want to know as much as possible about the business it is buying before the sale completes, but not every owner appreciates the importance of knowing the buyer. For example:
- If any deferred consideration takes place, will the buyer be good for the cash?
- If an earn-out exists, do you trust the buyer to not manipulate the short-term profits to reduce the price payable?
- If you are continuing in the business for a period after completion, can you work with the buyer?
Consider speaking to the owners of previous businesses that have been bought by the buyer. Putting a bit of effort into this phase can help you gauge how likely the sale is to complete and the success of the exit.
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