Description
On this paper talk how to secure your business for the next generation.
Business
INSIGHTS
Investec Editorials
How to secure
your business for
the next generation
Entrepreneurs leave their businesses for many different reasons.
One of the main drivers is to capitalise on the goodwill and
success of the business and divert more time to other interests.
Some people are drawn by the appeal of starting a new business
– pushing new boundaries and seeing ideas turned into a new
product or service. Like Virgin founder Sir Richard Branson, some
people can be drawn by the excitement of building a business,
driving its growth, exiting and starting afresh. And occasionally
the unexpected occurs and a death, disability, divorce, illness,
bankruptcy, liquidation or some other event necessitates departure.
Anyone looking to buy a business will scrutinise an exit strategy to
determine the “real” reasons for an owner’s departure and sale. This
forms part of due diligence and may affect the offer price.
The business is often an owner’s biggest asset, re?ecting many
years of ?nancial and personal contribution, so it is important to
obtain maximum value when selling. To do so, a business must
demonstrate a solid and sustainable structure with a strong balance
sheet, positive cash ?ow, competitiveness in the market and long-
term relationships with stakeholders.
In imagining the future, entrepreneurs see opportunities that others
don’t. However, as one entrepreneur commented: “We are fearless
risk-takers, but when it comes to ?nancial planning, we have the
potential to commit ?nancial suicide.”
This insight only emphasises the need for businesses, particularly
those under ?rst-generation ownership, to plan well before they
approach the exit point.
The Australian family business sector is worth $1.6 trillion. In the
next two to ?ve years there will be an in?ux of family businesses
for sale as the baby boomers start to retire, according to the MGI
Australian Family and Private Business Survey 2010.
The same survey revealed that two thirds of family businesses
were not prepared for succession. Making matters worse, more
than half indicated they did not intend to do anything about it in
the next 12 months.
Investec’s head of Private Client Corporate Advisory, Josh Bolot,
believes that now is a good time to consider exit or expansion plans.
However, business owners must be prudent, patient and smart in
planning such moves in this economic recovery environment.
“Many businesses are seeing greater opportunities now that values
and availability of funding are starting to recover,” Bolot says. “We help
our clients see the bigger picture and assess corporate and strategic
opportunities such as mergers, acquisitions, divestments or capital
raisings. In doing so, we work with owners to achieve their goals.”
Research from November 2010
1
(1) by Investec Specialist Private Bank
amongst some of Britain’s most successful entrepreneurs revealed 75
percent expect it to be ‘dif?cult’ to secure capital in 2011.
One in four leading entrepreneurs interviewed siad they would be
looking to private equity and venture capitalists to raise capital in 2011.
James Stirling, Investec Growth & Acquisition Finance, said: “Many
entrepreneurs are looking to grow their businesses this year, with
44% expecting to launch new ventures and a further 31% believing
that it is ‘quite likely’ that they will do this. However, their plans could
be put on hold because many still fear that access to capital could
be dif?cult. Only 6% of those we interviewed expect it to be easy to
raise funds during 2011.
Preparing for
succession
1
37 highly successful entrepreneurs with interests in one or more businesses with
turnover of at least £1 million in annual revenues from their UK business interests
who are either clients of Investec Specialist Private Bank or members of EO took
part in the survey during November 2010. The survey was conducted online and it
was anonymous.
2
The failure to successfully transfer family-owned businesses to the
next generation can deprive entrepreneurs of the ability to build a
legacy and create long-term wealth.
Key considerations
Professional advice: Appoint an experienced adviser who can
prepare a detailed valuation based on a complete understanding of
your business’s ?nancial position, obligations and management.
Clean and consistent accounts: The due diligence process will
review both historical ?nancial information and forecasts. Financial
statements should re?ect the earnings of the business in terms of
recognised ?nancial reporting standards, so that potential buyers
can understand the pro?tability, cash ?ow and ?nancial position.
Document key relationships: No business can expect to be
successful without the transition of relationships between key
employees, customers, suppliers and other stakeholders. These
relationships have a strong element of personal connection, so it is
important to have clear and well-documented agreements in place.
Key terms in such contracts include the length of the agreement,
obligations and rights concerning change of control of the business
and any exclusivity arrangements. For example, if a business has an
exclusive contract, ensure that its “exclusivity” is still enforceable in
the event of a change in ownership.
Understand revenue, earnings and cash: Revenue growth without
pro?tability or positive cash ?ow does not always translate into
a sustainable valuation. The future earnings of the business will
be analysed to determine the sustainability of operations under
?uctuating market conditions.
Retain parts of the business: The owners may wish to keep parts of
the business, such as brand names, properties or assets. To assist
in the valuation, it is important to consider the structure of those
parts of the business to be retained and consider how they relate to
the parts that will be sold.
Legal documentation: Certain legal documents can affect
the valuation of a business and the path to sale. Shareholder
agreements, constitutions or trust deeds can cover the rights and
obligations of shareholders, funding, structure, management and
the overall direction of the business. Robust agreements can help
guide the sale process and reduce the potential for con?ict. For
example, shareholder agreements can provide an exit strategy,
ensure stable control of a company and minimise unforeseen
challenges in the valuation and sale of a business.
Making
the transition
3
Selling to another market player or a private equity ?rm, transferring
ownership to employees, management or family and listing
the business through an initial public offering are all ways to
exit a business. But there are many issues that require careful
consideration.
• Raising equity: Raising venture capital or angel ?nance is often
dif?cult. Investors are looking for a compelling growth story and
strategy to drive revenue and pro?tability. Angel investors usually
look for investments from which they can generate a higher than
average rate of return.
• Partial sale: The inability to attract a good price for the whole
business may lead an owner to sell a partial stake. This can
be achieved through partnerships, conditional sales, share
placements and option agreements. A structure is often
established to allow for the phased transfer of the business
based on speci?c conditions.
• Management buy-out or management buy-in: The management
team has ?rst-hand knowledge and expertise of any business.
However, managers need to resolve issues regarding the
structure of the transaction and the raising of funds. Businesses
usually perform better after a buy-out than a buy-in, where there
is higher risk because the new owners are not as familiar with the
business.
• Employee share plans: Company founders may decide to sell
to employees in order to continue operations and retain identity.
Employees often know the business and will remain committed to
its sustainability if they can determine its future direction.
• Family: Family issues can often lead to disputes. One way to
avoid con?ict, in the ?rst instance, is to appoint a number of
independent directors to the board who can make unbiased
decisions about the future of the business.
• IPO (Initial Public Offering): Depending on market conditions and
growth pro?le, going public can be an appropriate path to exit for
some businesses.
Exit strategies
4
Part of succession planning often involves keeping the business within
the family. But it is often dif?cult to balance family issues with the best
interests of the business. Meticulous planning is critical to success.
Australian businessman Richard Pratt demonstrated this foresight by
creating a structure to maintain the Visy organisation’s prosperity before
he scaled back his executive role.
The MGI Australian Family and Private Business Survey 2010 found
that one third of family business owners believed it was not feasible to
implement leadership succession in their family business.
Keeping ownership within a family is usually more complex as it
requires the transfer of wealth, necessitating expert advice on estate
and retirement planning, capital gains tax and stamp duty.
Maintaining good communication between family members is
important. Wealth realisation and division of assets can often lead to
disputes and have a negative effect on the business.
Investec’s Co-Head of Private Bank, Paul Siviour, says owners need
to have frank and open discussions about succession, to establish
a common understanding of anticipated roles, responsibilities and
opportunities. “This is often part of the challenge as family and
individual goals are not always in line with the business’s goals,” Mr
Siviour says.
The MGI Australian Family and Private Business Survey 2010 found that
40.9 per cent of family business owner-managers believed that family-
based issues were more critical than business-based issues.
Key considerations
Appropriate appointments: Make sure that family values don’t
con?ict with commercial decisions. More than half of family
business owners (58.4 per cent) do not require family members to
have outside business experience before joining the business.
It’s a privilege, not a right: Family members may not always be
the most suitable successor even within a family business. An
independent director may be required to undertake performance
and remuneration reviews and con?ict resolution can be addressed
with formal shareholder agreements.
Set up a family council: Good governance helps with decision-
making and in the event of business disputes that risk affecting
family unity. The family business needs to be managed
professionally as part of the company’s management structure to
share information, build trust, avoid politics and achieve consensus.
Establish a board of directors: To provide business advice
and guidance, give the business greater transparency and
accountability, improve corporate decision-making, assess
corporate governance and plan without any loss of privacy.
Timing: Set a de?nite date for the transfer of leadership and control.
Develop a con?ict-management process as part of any orientation
when inducting new family members into the business.
Keeping it
in the family
5
Investec Bank (Australia) Ltd
Investec Bank (Australia) Limited is a wholly owned subsidiary of the
Investec Group, an international specialist bank and asset manager,
listed on the London and Johannesburg stock exchanges with assets
over £77.8 billion as at 30 September 2010 and market capitalisation
of £4.0 billion as at 30 September 2010. Investec entered the
Australian market in 1997 and delivers unique products and services in
private banking, investment banking, capital markets, property activities
and funds management to high net-worth clients, corporations
and institutional investors. Investec Australia has of?ces in Sydney,
Melbourne, Brisbane, Adelaide and Perth. For further information on
Investec please visit www.investec.com.au
Josh Bolot Head of Private Client Corporate Advisory
Josh Bolot has over ten years investment banking experience in
mergers & acquisitions and corporate ?nance, advising on company
transactions across the Australian market.
In May 2010 Josh established Investec’s Private Client Corporate
Advisory services to support privately owned businesses and small
to medium enterprises with regular strategic advice and transaction
execution for company changing events.
Josh has broad transaction experience across a range of
industries, with particular strength in Consumer Discretionary,
Media and General Industrials sectors. Roles include contested
takeovers, takeover defences, strategic reviews, divestments,
capital raisings and restructurings for listed and private
companies.
Paul Siviour
Co-Head of Private Bank
The Private Bank is focussed on assisting high net worth and
high income clients create wealth through Investec’s specialised
capabilities in property, lending, treasury, investment opportunities
and ?nancial advice.
Prior to joining Investec in September 2005, Paul was a partner of
Ernst & Young and a Director of Ernst & Young’s Corporate Finance
practice for 11 years.
In his capacity as a Corporate Advisor, Paul has advised on a wide
range of transactions including public acquisitions, restructures
and capital raisings as well as private mergers and acquisitions and
equity raisings.
Some relevant experience includes acting in relation to the A$2.7bn
sale of DCA Group Limited, the acquisition of Rothschild’s banking
business in Australia by Investec, various acquisitions and disposals
by Staging Connections Group Limited and stapling of shares and
units in the three listed West?eld entities restructure.
Greg Robertson Executive Director
Investec Wentworth Private Equity
Greg has over 25 years experience in business turnarounds, private
equity, accounting and law.
Prior to joining Investec Wentworth Private Equity in 2002, Greg
spent 17 years with a global accounting ?rm, eight of these
as a partner. Greg was also the Chief Operating Of?cer of an
e-commerce services company.
Greg sits on the boards of many of Investec Wentworth Private
Equity’s portfolio companies and has held a number of listed
company directorships.
“The information contained in this document (“Information”) is general in nature and has been provided in good faith, without taking
into account your personal circumstances. Whilst all reasonable care has been taken to ensure that the Information is accurate and
opinions fair and reasonable, no warranties in this regard are provided. We recommend that you obtain independent ?nancial and tax
advice before making any decisions.”
6
A bank of ideas
Instead of taking the usual route, we combine
innovative thinking and specialist expertise,
exceeding expectations across a range of services
including private banking, asset management,
capital markets, investment banking and private
equity.
www.investec.com.au
The desire to be different drives us.
Private Banking • Investment Banking • Capital Markets • Private Equity • Specialist Funds • Asset Management • Securities
doc_132436913.pdf
On this paper talk how to secure your business for the next generation.
Business
INSIGHTS
Investec Editorials
How to secure
your business for
the next generation
Entrepreneurs leave their businesses for many different reasons.
One of the main drivers is to capitalise on the goodwill and
success of the business and divert more time to other interests.
Some people are drawn by the appeal of starting a new business
– pushing new boundaries and seeing ideas turned into a new
product or service. Like Virgin founder Sir Richard Branson, some
people can be drawn by the excitement of building a business,
driving its growth, exiting and starting afresh. And occasionally
the unexpected occurs and a death, disability, divorce, illness,
bankruptcy, liquidation or some other event necessitates departure.
Anyone looking to buy a business will scrutinise an exit strategy to
determine the “real” reasons for an owner’s departure and sale. This
forms part of due diligence and may affect the offer price.
The business is often an owner’s biggest asset, re?ecting many
years of ?nancial and personal contribution, so it is important to
obtain maximum value when selling. To do so, a business must
demonstrate a solid and sustainable structure with a strong balance
sheet, positive cash ?ow, competitiveness in the market and long-
term relationships with stakeholders.
In imagining the future, entrepreneurs see opportunities that others
don’t. However, as one entrepreneur commented: “We are fearless
risk-takers, but when it comes to ?nancial planning, we have the
potential to commit ?nancial suicide.”
This insight only emphasises the need for businesses, particularly
those under ?rst-generation ownership, to plan well before they
approach the exit point.
The Australian family business sector is worth $1.6 trillion. In the
next two to ?ve years there will be an in?ux of family businesses
for sale as the baby boomers start to retire, according to the MGI
Australian Family and Private Business Survey 2010.
The same survey revealed that two thirds of family businesses
were not prepared for succession. Making matters worse, more
than half indicated they did not intend to do anything about it in
the next 12 months.
Investec’s head of Private Client Corporate Advisory, Josh Bolot,
believes that now is a good time to consider exit or expansion plans.
However, business owners must be prudent, patient and smart in
planning such moves in this economic recovery environment.
“Many businesses are seeing greater opportunities now that values
and availability of funding are starting to recover,” Bolot says. “We help
our clients see the bigger picture and assess corporate and strategic
opportunities such as mergers, acquisitions, divestments or capital
raisings. In doing so, we work with owners to achieve their goals.”
Research from November 2010
1
(1) by Investec Specialist Private Bank
amongst some of Britain’s most successful entrepreneurs revealed 75
percent expect it to be ‘dif?cult’ to secure capital in 2011.
One in four leading entrepreneurs interviewed siad they would be
looking to private equity and venture capitalists to raise capital in 2011.
James Stirling, Investec Growth & Acquisition Finance, said: “Many
entrepreneurs are looking to grow their businesses this year, with
44% expecting to launch new ventures and a further 31% believing
that it is ‘quite likely’ that they will do this. However, their plans could
be put on hold because many still fear that access to capital could
be dif?cult. Only 6% of those we interviewed expect it to be easy to
raise funds during 2011.
Preparing for
succession
1
37 highly successful entrepreneurs with interests in one or more businesses with
turnover of at least £1 million in annual revenues from their UK business interests
who are either clients of Investec Specialist Private Bank or members of EO took
part in the survey during November 2010. The survey was conducted online and it
was anonymous.
2
The failure to successfully transfer family-owned businesses to the
next generation can deprive entrepreneurs of the ability to build a
legacy and create long-term wealth.
Key considerations
Professional advice: Appoint an experienced adviser who can
prepare a detailed valuation based on a complete understanding of
your business’s ?nancial position, obligations and management.
Clean and consistent accounts: The due diligence process will
review both historical ?nancial information and forecasts. Financial
statements should re?ect the earnings of the business in terms of
recognised ?nancial reporting standards, so that potential buyers
can understand the pro?tability, cash ?ow and ?nancial position.
Document key relationships: No business can expect to be
successful without the transition of relationships between key
employees, customers, suppliers and other stakeholders. These
relationships have a strong element of personal connection, so it is
important to have clear and well-documented agreements in place.
Key terms in such contracts include the length of the agreement,
obligations and rights concerning change of control of the business
and any exclusivity arrangements. For example, if a business has an
exclusive contract, ensure that its “exclusivity” is still enforceable in
the event of a change in ownership.
Understand revenue, earnings and cash: Revenue growth without
pro?tability or positive cash ?ow does not always translate into
a sustainable valuation. The future earnings of the business will
be analysed to determine the sustainability of operations under
?uctuating market conditions.
Retain parts of the business: The owners may wish to keep parts of
the business, such as brand names, properties or assets. To assist
in the valuation, it is important to consider the structure of those
parts of the business to be retained and consider how they relate to
the parts that will be sold.
Legal documentation: Certain legal documents can affect
the valuation of a business and the path to sale. Shareholder
agreements, constitutions or trust deeds can cover the rights and
obligations of shareholders, funding, structure, management and
the overall direction of the business. Robust agreements can help
guide the sale process and reduce the potential for con?ict. For
example, shareholder agreements can provide an exit strategy,
ensure stable control of a company and minimise unforeseen
challenges in the valuation and sale of a business.
Making
the transition
3
Selling to another market player or a private equity ?rm, transferring
ownership to employees, management or family and listing
the business through an initial public offering are all ways to
exit a business. But there are many issues that require careful
consideration.
• Raising equity: Raising venture capital or angel ?nance is often
dif?cult. Investors are looking for a compelling growth story and
strategy to drive revenue and pro?tability. Angel investors usually
look for investments from which they can generate a higher than
average rate of return.
• Partial sale: The inability to attract a good price for the whole
business may lead an owner to sell a partial stake. This can
be achieved through partnerships, conditional sales, share
placements and option agreements. A structure is often
established to allow for the phased transfer of the business
based on speci?c conditions.
• Management buy-out or management buy-in: The management
team has ?rst-hand knowledge and expertise of any business.
However, managers need to resolve issues regarding the
structure of the transaction and the raising of funds. Businesses
usually perform better after a buy-out than a buy-in, where there
is higher risk because the new owners are not as familiar with the
business.
• Employee share plans: Company founders may decide to sell
to employees in order to continue operations and retain identity.
Employees often know the business and will remain committed to
its sustainability if they can determine its future direction.
• Family: Family issues can often lead to disputes. One way to
avoid con?ict, in the ?rst instance, is to appoint a number of
independent directors to the board who can make unbiased
decisions about the future of the business.
• IPO (Initial Public Offering): Depending on market conditions and
growth pro?le, going public can be an appropriate path to exit for
some businesses.
Exit strategies
4
Part of succession planning often involves keeping the business within
the family. But it is often dif?cult to balance family issues with the best
interests of the business. Meticulous planning is critical to success.
Australian businessman Richard Pratt demonstrated this foresight by
creating a structure to maintain the Visy organisation’s prosperity before
he scaled back his executive role.
The MGI Australian Family and Private Business Survey 2010 found
that one third of family business owners believed it was not feasible to
implement leadership succession in their family business.
Keeping ownership within a family is usually more complex as it
requires the transfer of wealth, necessitating expert advice on estate
and retirement planning, capital gains tax and stamp duty.
Maintaining good communication between family members is
important. Wealth realisation and division of assets can often lead to
disputes and have a negative effect on the business.
Investec’s Co-Head of Private Bank, Paul Siviour, says owners need
to have frank and open discussions about succession, to establish
a common understanding of anticipated roles, responsibilities and
opportunities. “This is often part of the challenge as family and
individual goals are not always in line with the business’s goals,” Mr
Siviour says.
The MGI Australian Family and Private Business Survey 2010 found that
40.9 per cent of family business owner-managers believed that family-
based issues were more critical than business-based issues.
Key considerations
Appropriate appointments: Make sure that family values don’t
con?ict with commercial decisions. More than half of family
business owners (58.4 per cent) do not require family members to
have outside business experience before joining the business.
It’s a privilege, not a right: Family members may not always be
the most suitable successor even within a family business. An
independent director may be required to undertake performance
and remuneration reviews and con?ict resolution can be addressed
with formal shareholder agreements.
Set up a family council: Good governance helps with decision-
making and in the event of business disputes that risk affecting
family unity. The family business needs to be managed
professionally as part of the company’s management structure to
share information, build trust, avoid politics and achieve consensus.
Establish a board of directors: To provide business advice
and guidance, give the business greater transparency and
accountability, improve corporate decision-making, assess
corporate governance and plan without any loss of privacy.
Timing: Set a de?nite date for the transfer of leadership and control.
Develop a con?ict-management process as part of any orientation
when inducting new family members into the business.
Keeping it
in the family
5
Investec Bank (Australia) Ltd
Investec Bank (Australia) Limited is a wholly owned subsidiary of the
Investec Group, an international specialist bank and asset manager,
listed on the London and Johannesburg stock exchanges with assets
over £77.8 billion as at 30 September 2010 and market capitalisation
of £4.0 billion as at 30 September 2010. Investec entered the
Australian market in 1997 and delivers unique products and services in
private banking, investment banking, capital markets, property activities
and funds management to high net-worth clients, corporations
and institutional investors. Investec Australia has of?ces in Sydney,
Melbourne, Brisbane, Adelaide and Perth. For further information on
Investec please visit www.investec.com.au
Josh Bolot Head of Private Client Corporate Advisory
Josh Bolot has over ten years investment banking experience in
mergers & acquisitions and corporate ?nance, advising on company
transactions across the Australian market.
In May 2010 Josh established Investec’s Private Client Corporate
Advisory services to support privately owned businesses and small
to medium enterprises with regular strategic advice and transaction
execution for company changing events.
Josh has broad transaction experience across a range of
industries, with particular strength in Consumer Discretionary,
Media and General Industrials sectors. Roles include contested
takeovers, takeover defences, strategic reviews, divestments,
capital raisings and restructurings for listed and private
companies.
Paul Siviour
Co-Head of Private Bank
The Private Bank is focussed on assisting high net worth and
high income clients create wealth through Investec’s specialised
capabilities in property, lending, treasury, investment opportunities
and ?nancial advice.
Prior to joining Investec in September 2005, Paul was a partner of
Ernst & Young and a Director of Ernst & Young’s Corporate Finance
practice for 11 years.
In his capacity as a Corporate Advisor, Paul has advised on a wide
range of transactions including public acquisitions, restructures
and capital raisings as well as private mergers and acquisitions and
equity raisings.
Some relevant experience includes acting in relation to the A$2.7bn
sale of DCA Group Limited, the acquisition of Rothschild’s banking
business in Australia by Investec, various acquisitions and disposals
by Staging Connections Group Limited and stapling of shares and
units in the three listed West?eld entities restructure.
Greg Robertson Executive Director
Investec Wentworth Private Equity
Greg has over 25 years experience in business turnarounds, private
equity, accounting and law.
Prior to joining Investec Wentworth Private Equity in 2002, Greg
spent 17 years with a global accounting ?rm, eight of these
as a partner. Greg was also the Chief Operating Of?cer of an
e-commerce services company.
Greg sits on the boards of many of Investec Wentworth Private
Equity’s portfolio companies and has held a number of listed
company directorships.
“The information contained in this document (“Information”) is general in nature and has been provided in good faith, without taking
into account your personal circumstances. Whilst all reasonable care has been taken to ensure that the Information is accurate and
opinions fair and reasonable, no warranties in this regard are provided. We recommend that you obtain independent ?nancial and tax
advice before making any decisions.”
6
A bank of ideas
Instead of taking the usual route, we combine
innovative thinking and specialist expertise,
exceeding expectations across a range of services
including private banking, asset management,
capital markets, investment banking and private
equity.
www.investec.com.au
The desire to be different drives us.
Private Banking • Investment Banking • Capital Markets • Private Equity • Specialist Funds • Asset Management • Securities
doc_132436913.pdf