Business values fall, clients lists rise: Richard Rasmussen

Those considering exiting the industry and attempting to sell their business as a going concern may be left disappointed by the price they achieve and the length of time it takes to conclude a deal, says Richard Rasmussen, director of Ascent Partners.

Client list sales on the other hand are in high demand and speedier to execute.  Hence, the split-sale process, where you sell your client list (goodwill) and other assets separately, is certainly now a viable alternative for many printers  

The heavy demand for client lists is largely caused because printers are trying to shoreure up their own 2009 print sales. Anecdotal evidence suggests that those that ask their customers what they are likely to spend with them in 2009 are told less, and in some cases, substantially less. So, faced with the probability of falling sales, printers need to either cut costs or find ways to grow sales (or both).

Growing sales organically in any market is tough, but in this market, where there is less print pie, it is even tougher. Hence many printers are looking to grow by acquisition.

However this acquisition demand is not for going concern businesses, but rather for the client base, some plant and equipment, the key staff that are responsible for those sales, and perhaps a few extra employees. My business’s prospect base for these type of sales now far outweighs those wanting to purchase the complete business as a going concern. Most of the limited demand for going concern sales is around the franchise end of the market.

The prices achieved in going concern sales has also been negatively affected by the lack of available credit, falling equipment prices and the risk factors associated with the global financial crisis. Purchasers justifiably ask “why should I pay on a multiple of previous profitability performance, when this business has never been stress tested”?

The net result is that goodwill (or client lists) are in high demand (and the prices they are achieving are good to very good) and going concern sales will be fewer and the cheaper.

Keeping up to speed
One of the major advantages is the speed in which a complete split-sale can be concluded. In going concern sales it can take 6 months or longer. A client list sale can be concluded in a literally weeks. There is also a greater degree of flexibility in the way the deal is done and what is included in the split-sale process. Vendors can be pretty specific about how they offer the client lists and who they target them to – terms they are sold at, earn outs, vendor’s involvement, staff taken on, and the equipment taken on.

Some good prices have been paid for client lists even for firms that are in liquidation (we recently achieved a very good result in five days). We only targeted a few firms who suited the type of work and were able to make a quick decision. Obviously better prices can be achieved before the liquidation event and for good profitable businesses.  

Prospective purchasers often welcome vendors into their business with open arms. Sometimes this is in the form of full time employment, other times on a contract basis. Some vendors are concerned about their ability to work for others, whereas others welcome the regular income, shorter hours and experience far less stress than they did as a business owner

Good targeting can help achieve very good results. Time spent in reconnaissance is time rarely wasted. You only approach, or introduce the business to those that you trust, and ones that provide the best deal for you. Tailored, properly structured deals really can be a win – win. Good qualification of prospective purchasers also reduces the risk of confidentiality leaks.    

Apart from the client list sale, obviously vendors need to consider what they can expect to realize for the equipment not taken by the purchaser and what they do with the lease / sale of the building. A fairly good indication can be gauged by doing some pre client list sale homework.

The other consideration is the staff and what entitlements they are owed. Careful targeting can result in a high uptake of staff. 

As to which method of sale you adopt – going concern or split-sale, you need to compare the numbers for each and be very realistic about values in today’s market.   

Values for money
A word on values – forget about previous multiples that were paid for businesses sold as going concerns, and about what you owe and have written down your equipment to – they have little to do with the real prices being paid now. Seek advice from people in the know – i.e. these advisors should provide values based on recent sales evidence of machinery, businesses and client lists. Chances are this person is not your accountant (speak to them more on other matters such as the tax implications of the differing sales methods).  

The heavy demand for client lists, the degree of targeting and formulating of the deal, and the speed at which the deal can be done, may well bring the split-sale method into contention for many printers, especially for those that are struggling and fear for the viability of their business in a downturn  

Once you have done the analysis you can make a considered and informed call on what is best for your individual circumstances.

If the end result is to “trade on” for a few extra years, and not to consider selling as a going concern or a split-sale, the analysis you have done has not been wasted. In fact it now arms you with a very good basis to form an exit strategy – one that addresses what you to need to do to develop a viable ongoing business, one that is attractive to a purchaser when it does come time to sell, and one that produces the best chance for good outcome for your personal circumstances.