Selling or Closing options.

[-EndGame-]

Hi everyone,

I have a limited company in Staffordshire and we specialise in Diesel Fuel Injection Equipment.

My brother and I are the only shareholders after the death of our elderly mother 18 months ago.

We have decided that after 30 years of working there we want to sell the business or even close it if we have no offers. The share value of the company is high as we have accumulated a cash amount within the business that elevates the value significantly. Our accountant informs me that a buyer would most probably want us to liquidate the company and then they could buy the assets, goodwill etc. the property is available leasehold or freehold. In this situation I believe we would have to pay redundancy to our employees and give three months notice as the majority have long service. Am I correct in thinking that another option is for a buyer to take on the staff and take liability for the redundancy but this would be reflected in the price of the assets, goodwill etc.?

The company was founded over 50 years ago by our father and still has mileage, so hopefully we may be able to sell rather than close.

Any advice would be of great help, thank you

 

[Scalloway]

TUPE would probably apply if you sold the assets if the buyer was going to carry on the business.

https://www.gov.uk/transfers-takeovers/overview

 

[-EndGame-]

Thank you for the link. Yes it does look like TUPE would apply which means even if we liquidated the company and someone bought the assets etc they would take on the employee obligations.
We have advertised the company on Daltons but have had very little response. I wonder if there are any recommendations for other options?
Thank you

 

[billmccallum1957]

Have you considered asking the employees if they would want to buy the business?

 

[The Byre]

1. How many people work at your company?

2. Is there anybody on the staff who could take over management (or possibly a spouse)?

3. Why, if this is a viable and going concern, do you wish to sell, or even close if no buyer forthcoming?

4. What are the future prospects for your industry and product/services range?

5. If the worst case scenario is to just pull the plug and close, have you considered just leasing the property to staff and letting them carry on business?

 

[Mark T Jones]

Assuming you're not desperate for the cash, I'd go with the above suggestion of a phased buy-in by the staff.

Take professional advice, but a friend of mine is doing this through dividends (so the staff actually cough up very little). He remains as chairman until the deal is complete but has little or no day-to-day involvement - though the new MD bounces a lot off him.

 

[-EndGame-]

Have you considered asking the employees if they would want to buy the business?

Yes this could be an option. Although the staff would need support for sure.

 

[wojtekf]

As others write if the company is profitable, try to sell it to employees.

 

[-EndGame-]

1. How many people work at your company?

2. Is there anybody on the staff who could take over management (or possibly a spouse)?

3. Why, if this is a viable and going concern, do you wish to sell, or even close if no buyer forthcoming?

4. What are the future prospects for your industry and product/services range?

5. If the worst case scenario is to just pull the plug and close, have you considered just leasing the property to staff and letting them carry on business?

Six production, two directors, one accounts person who does part time. One of the directors is also in production.
There is no one member of staff who stands out as a potential buyer.
We wish to sell because after 35 years of working here we wish to retire or experience something different.
The industry has changed significantly. Electronics in Diesel have meant we can no longer service all units and the parts cost to service them is now much higher. Also investment in machinery is increased.
Yes we have considered leasing the property to the staff and letting them carry on. However they are not natural business men and I do not have great confidence.

 

[The Byre]

OK, so what we've got is an old fashioned machine shop that specialises in diesel fitting. The sort of place where Farmer Giles can take his International Harvester 475 to have the pump cleaned and new injectors put in, but not where his son will be able to get his Case Quadtrac engine re-mapped.

I am also assuming here that most of the staff have been with you more than two years and some may have been there since 49BC and therefore would be due a fair old redundancy settlement in the event of closure. Also, they are not going to be up-to-speed any time soon, when it comes to using the latest Bosch ESI diagnostics systems.

I am further assuming that trade is falling steadily and that you and your brother are afraid of a slow death, as all the Farmer Gileses in your part of the World die and the IH-475 becomes another 'barn-find' on ebay.

If the above more or less meets the case, then I have the following points to make -

1. As a going concern, the lack of growth means (as you have found out) it ain't worth much - if anything!

2. You could slowly wind the whole thing down, making staff redundant, piece by piece, on a last-in/first-out basis to keep redundancy costs down, until it just dies an unnatural death.

3. If it does die, you could rent the entire shop out and it would be earning money, albeit, not much, but better than a poke in the eye with a pointed stick. If you have equity in the place, you could sell the building and trouser the value.
_____________________________________

The thing is, I wouldn't do any of the above!

Your real problem is that you and your brother are tied, bored and fed up. It feels as if you are swimming upstream and getting nowhere fast and you both just want to stop and get out of the river!

Tractors, harvesters, marine engines, diggers, loaders and all the other bits and bobs still need to be serviced and repaired. The fact that you have to plug in a diagnostics system and stuff like injector control systems come as one closed unit, does not mean that machines are now off limits to you and your crew. Machines still wear out and need fixing!

The above mentioned Bosch system, complete with interface and cables, etc., can cost less than £10,000 (and there are other, far cheaper systems!) and it sure ain't rocket science to read out what it says on the screen of your dedicated Bosch laptop - and even do a print-out for the customer!

You want to do something different?

OK, how about a re-launch of your company?

Paint the building, create a nice customer reception area with chairs and a coffee machine, make the staff wear clean uniforms with the name of your company on them, buy at least one diagnostics system with all the software you will need for the usual local machines, clean up the shop and get rid of all the rubbish that has accumulated over half a century and last, but by no means least, put a dirty-great-big new sign up outside, telling the World that you are there.

And when you've done all that, tell the local press and hold a big party!

 

[-EndGame-]

Very funny

We have already got the Bosch KTS and other modern Bosch Equipment.

Yes half correct , the place definitely needs a coat of paint that's for sure...

 

[The Byre]

Well, I apologise for assuming too much!

But most companies I look at that are failing or just stagnating need a coat of paint - and in every sense. Surroundings, back of building, uniforms, installed technology, you name it and it needs a coat of paint!

But you could both (or maybe just one of you, with the other either the other brother a silent partner or buy-out) find a new challenge in re-launching the company.

I have a company whose turnover has just fallen through the floor. (Fortunately I have other interests that are doing OK, so don't break-out the violins just yet!) It has not only been devastated by having an entire building destroyed by up-rooted trees taking to the air in a violent storm, coming down on the roof, which meant all the machinery in there had to be moved to another building, thereby making that building less useful as well. But also the entire industry has suffered a massive draw-down as a result of a change in technology.

Removing those trees took an entire year (soft ground, so no cranes or other machinery possible, so me, myself and I - no contractor was prepared to take the job - had to climb up onto the broken roof with a large chainsaw and cut the trees into bits). But last year, we got the building back and this year we can start refitting and equipping.

This disaster has given us a golden opportunity to totally rethink that business. We had fallen behind technically. The little that remains of that market has become totally computerised and we still relied on dedicated machines - vastly superior IMO, but far, far more expensive as they take longer to use. The market wants hyper-cheap. Quality has totally gone for a Burton!

As a result, we can leap-frog the technology. We shall be able to integrate technologies that allow us to attack new markets that are only now beginning to emerge. At the same time, we can use that advantage to access new methods of distribution, bypassing old gateway functions and distribution methods and reaching the end user directly.

And yes, we made the same mistakes of looking dowdy and somewhat down-at-heel. Rubbish out the back, buildings needing a fresh coat of paint, machines not cleaned properly, silly stuff like that.

The fun part is that each new generation of technology is getting effectively cheaper. One of the key bits of software we shall be using costs $240!!! Another is actually totally free and most key packages cost about £500. The workstations we shall require will cost about £8k each. Chicken feed, compared to what we spent 15 years ago, when we set the place up.

So, despite the fact that I have this year entered the age in which various pension schemes are prepared to pay me for still being alive (a very strange concept, if you look at it that way!) I am really totally action-fribbled with the idea of starting from scratch and breaking into a new market and having a go at new opportunities.

 

[Chris Ashdown]

You say you advertised in Daltons but is that enough may be speaking to all local accountants and solicitors may also be a option as they are often the link to possible buyers who are not actually looking at Daltons

 

[-EndGame-]

Well, I apologise for assuming too much!

But most companies I look at that are failing or just stagnating need a coat of paint - and in every sense. Surroundings, back of building, uniforms, installed technology, you name it and it needs a coat of paint!

But you could both (or maybe just one of you, with the other either the other brother a silent partner or buy-out) find a new challenge in re-launching the company.

I have a company whose turnover has just fallen through the floor. (Fortunately I have other interests that are doing OK, so don't break-out the violins just yet!) It has not only been devastated by having an entire building destroyed by up-rooted trees taking to the air in a violent storm, coming down on the roof, which meant all the machinery in there had to be moved to another building, thereby making that building less useful as well. But also the entire industry has suffered a massive draw-down as a result of a change in technology.

Removing those trees took an entire year (soft ground, so no cranes or other machinery possible, so me, myself and I - no contractor was prepared to take the job - had to climb up onto the broken roof with a large chainsaw and cut the trees into bits). But last year, we got the building back and this year we can start refitting and equipping.

This disaster has given us a golden opportunity to totally rethink that business. We had fallen behind technically. The little that remains of that market has become totally computerised and we still relied on dedicated machines - vastly superior IMO, but far, far more expensive as they take longer to use. The market wants hyper-cheap. Quality has totally gone for a Burton!

As a result, we can leap-frog the technology. We shall be able to integrate technologies that allow us to attack new markets that are only now beginning to emerge. At the same time, we can use that advantage to access new methods of distribution, bypassing old gateway functions and distribution methods and reaching the end user directly.

And yes, we made the same mistakes of looking dowdy and somewhat down-at-heel. Rubbish out the back, buildings needing a fresh coat of paint, machines not cleaned properly, silly stuff like that.

The fun part is that each new generation of technology is getting effectively cheaper. One of the key bits of software we shall be using costs $240!!! Another is actually totally free and most key packages cost about £500. The workstations we shall require will cost about £8k each. Chicken feed, compared to what we spent 15 years ago, when we set the place up.

So, despite the fact that I have this year entered the age in which various pension schemes are prepared to pay me for still being alive (a very strange concept, if you look at it that way!) I am really totally action-fribbled with the idea of starting from scratch and breaking into a new market and having a go at new opportunities.

No need to apologise, I genuinely found it very amusing.

Well. I have called the painter and he's coming to paint the place so you definitely had a point there and action has been taken.

I hope the business does have value because we have some valuable equipment and experienced staff, yes they have been with us many years but that doesn't equate to 'not being up to speed'. We are specialists in our field and have a reputation as such in our area. That said, it doesn't change the fact that we wish to sell the business, closing would be a very sad and a last resort.

With regard to your own business interests, I admire your tenacity .

 

[-EndGame-]

You say you advertised in Daltons but is that enough may be speaking to all local accountants and solicitors may also be a option as they are often the link to possible buyers who are not actually looking at Daltons

Thank you. I think this is a good idea and I will start to contact accountants and solicitors . We have also written to existing business's in our sector and we do have a meeting with one interested party in July.

 

[The Byre]

With regard to your own business interests, I admire your tenacity .

That's not what my wife calls it!

 

[Chris Ashdown]

Have you thought of hiring a manager to run things for you

You could consider opening new area's for old tech like pleasure boats , shipping including fishing and other similar area's where there are plenty of low tech engines and you could be sub contractors to more local support firms

 

[Mark T Jones]

Turn the unit into a trampoline park!

 

[-EndGame-]

Have you thought of hiring a manager to run things for you

You could consider opening new area's for old tech like pleasure boats , shipping including fishing and other similar area's where there are plenty of low tech engines and you could be sub contractors to more local support firms

Yes we have thought of it. Not had a good experience with a manager at another business we had in the same field as this, diesel fuel injection.

We would really prefer a clean break.

 

[-EndGame-]

Turn the unit into a trampoline park!

Seriously? The property is not a unit and is not suitable if you are....

 

[john1989]

@Clinton specialises in buying and selling businesses. Would be worth contacting him to discuss your options.

 

[Clinton]

@john1989, thanks for the mention.

@-EndGame- as has already discussed in this thread, there's the possibility of sale to the employees. If you feel the employees don't have the skills to take over from you, you could consider an MBI (Management Buy In) where an external party with the relevant management skills buys into the business. It's often the case, however, that intermediaries steer people in your position away from MBIs because the intermediary's compensation is largely based on the value that's changing hands i.e. they have an incentive to recommend a 100% sale rather than structuring the solution to optimise the overall value you extract from the business.

Owner exhaustion is not uncommon and is often the cause for sale. Especially as, in your case, the owners have been there a long time. As The Byre says, lack of growth in your recent stats will count against you. Whatever the prospect of the business picking up and whatever the chances of a new lick of paint getting a whole raft of new customers in, you can count on buyers/investors using the lack of growth to their advantage when negotiating terms.

I'm not surprised at the low response in Daltons. I find BusinessesForSale slightly better, but even there the response isn't huge. All have premium options (as with RightBiz) to give you greater visibility but it's not necessarily worth the money. When you do get enquiries you'll often get what I call the "Carl Allen" types (wanting to buy the business with 100% seller financing! )

You can contact accountants and solicitors, but I'm afraid that if they are not deal specialists you'll get nowhere fast with them. Some accountancy firms have specialist Corporate Finance divisions and so are geared for this kind of work. Similarly with the legal industry - some legal fims like Clifford Chance are M&A specialists. It's very rare, however, for accountants and solicitors to be good at the selling aspect of placing a business. And selling a business is, essentially, a sales job.

You want an intermediary who can put together a prospectus that portrays your business in its best light, but you also want one who can invest the research to find the strategic partners for whom you'd be a good fit. There are a lot of companies out there that are having trouble growing organically and which can only meet stakeholders' growth expectations via making an acquisition. You want someone who can identify these companies and find the ones who have the most to gain from acquiring you and then approach them to pitch the case .... complete with spreadsheet projections showing how the merged entity is likely to perform (which costs would be saved, which economies of scale could be exploited etc). The right company would also benefit from your "missing" management expertise. They'll have underemployed managers they could slot into the role.

No, I'm not the intermediary for you and I'm fully booked up at present, but I'm happy to have a chat and answer any questions you have if you want to drop me a note with your email address / phone number.

Alternatively, you could roll your sleeves up, get into a relaunch, make your business more relevant and profitable, establish a nice revenue growth for a couple of years ... and then sell. You'd obviously be a much more attractive target then and can expect a significantly higher price.

 

[-EndGame-]

Clinton,
Thank you for the advice and the offer of a chat etc. I may well take you up on that, you obviously have a lot of experience in this area.

Thanks to everyone for their suggestions.

 

[uksme]

We have advertised the company on Daltons but have had very little response.

Sorry to hear you have not had much response. Please could you PM me your name, or let me know your seller reference? We will investigate this immediately.

 

[uksme]

Just to clarify, @Clinton has never advertised on Daltons - his comments don't reflect the quality of our service. Daltons have been connecting buyers and sellers since Victorian times, and we keep a list of testimonials at http://www.daltonsbusiness.com/testimonials

 

[Clinton]

Just to clarify, @Clinton has never advertised on Daltons - his comments don't reflect the quality of our service.

uksme, I'm not a business broker so why would I advertise on Daltons? I do advise clients on the best way to get publicity for their sale, but clients usually make their own arrangements. For some of them Daltons may be appropriate. For others, it's not. I made no comment about the quality of your service.

 

[Lawyer James]

Out of interest, why has the accountant suggested you put the company into Liquidation first?