Timing Is Everything! Action Plan for a Pre- June 2024 Business Sale or Capital Raising

Executive Summary

Are you aiming to sell your private business or raise unlisted capital before 30 June 2024? If so, the clock is ticking and you need to think about acting soon.

Before Christmas, start by clarifying your objectives, identifying your preferred strategy and structure and appointing the right advisers. Do not wait until after Australia Day to start thinking about these issues as it will probably mean that after 4-6 weeks preparation and a minimum 3-4 months process, achieving a 30 June 2024 deadline will be very tight.

The upcoming Christmas / New Year season then provides a good opportunity to start preparing for your business sale or capital raise. Whilst corporates and investors in Australia are largely on holiday, you can use this period to get your financials in order, create essential marketing materials and set up due diligence groundwork. Acting now will ensure a timely launch in late January or early February, maximizing your chances for a successful transaction before 30 June 2024.

Conquest Capital has more than a combined 100 years’ experience across more than $50 billion in M&A transactions and $10 billion in equity and debt capital raisings across multiple sectors.

If you would like a sounding board to discuss a potential sale of your business or you wish to raise capital, please feel free to contact me at [email protected] or give me a call at 0420989706.

1. Indicative Transaction Timetable

Below is an indicative timeline for a successful business sale or capital raising by 30 June 2024, if that is your goal.

Working backwards from 30 June 2024:

• Process - Ideally you will launch as early as possible after Australia Day in late January or early February so that this provides enough time to run a proper length sale / capital raising process (minimum 3-4 months) plus a bit of a buffer;
• Preparation – typically takes at least 4-6 weeks to get accounts, marketing materials and due diligence materials prepared so this would ideally occur across the Christmas to late January “holiday season”;
• Objectives – setting transaction objectives and appointing advisers should be occurring shortly.

We say more about these issues later in this Newsletter.

2. Preparing a Business for Sale or Capital Raising

In preparing a business for sale or capital raising, there are a number of steps to consider:

Process Strategy

• Owner Objectives – define the objectives of any process including: (i) what % the owner wishes to sell (less than 50%, 50% or more than 50%); (ii) what capital needs to be raised “in” the business to fuel growth; (iii) valuation; (iv) consideration mix (if sale) or investment instrument; (v) owner transition plan;
• Timing – there may be no reason to be tied specifically to a 30 June 2024 timeline, but it is a useful to have a deadline to work towards;
• Valuation – have a clear, but realistic, view of business value with back-up support from trading and transaction comparable valuation multiples;
• Structural Considerations – consider the type of investment required in a capital raising (eg ordinary or preferred equity, convertible notes) or the structure of any sale consideration (eg cash, shares, earn-outs etc);
• Identifying Potential Buyers / Investors – early identification of potential acquirers who have the strategic rationale, capability and desire to pay the highest value and potential investors is important. Ideally both sets should be “warmed up” before the start of any process so that they are ready strategically and resource-wise for investment.

Maximising Business Value

• Operations – consider winding back capital expenditure and discretionary spending to avoid investing money where the return on invested capital is too low and the payback period too long;
• Commercial – review whether it makes sense to renew key contracts and extend them for a multi-year period. This applies particularly with key customers that represent a significant proportion of revenue or are business critical expenses, such as key suppliers, software licences and government permits. However, where potential buyers might derive significant synergies from merging key functions or cherry-picking the best supply terms, it may make sense not to extend so that the buyer can maximise potential synergies;
• Management and Employees - key management are usually critical in a sale process and it may be useful to pay a "sale bonus" which vests on sale.

?Getting the House in Order

• Financials – historical financials need to be reviewed to strip out one-off items (e.g. Jobkeeper subsidies, owner drawings / lifestyle expenses) that may impact a normalised view of financial performance. The seller should also prepare forecast financials for 2- 3 financial years, which include reasonable, justifiable assumptions;
• Marketing Materials – prepare a Teaser and Information Memorandum setting out the key investment highlights of the business, including customers, operations, management, intellectual property, brand and historical and forecast financial performance;
• Due Diligence – provided to factually confirm that the statements made in any marketing materials and meetings are true and to maximise value and minimise consideration “hold-back”. It can be voluminous and will take considerable time to collate so it is worth preparing across the holiday season if the business is in a slightly slower phase. Conquest Capital can provide a full due diligence checklist on request;
• Build a Team of Advisers – engaging advisers (financial, accounting and legal with relevant experience) to be part of the planning stage is advisable so that they can participate in important decisions regarding the process to maximise value and ensure the transaction is successful.

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3. Sale or Capital Raising Process

There are a number of stages in selling a business or raising capital:

• Process Launch – best done as soon as possible after Australia Day if it is important to close a transaction by 30 June 2024;
• Marketing Materials – a non-confidential Teaser is often sent out to explore interest followed by a confidential Information Memorandum after signing a Non-Disclosure Agreement (“NDA”). Where strategic acquirers / investors are assessing the opportunity, we often tailor slide(s) in the marketing materials to highlight how an acquisition / investment fits with the acquirer’s / investor’s corporate strategy;
• Expression of Interest – confirms whether there is interest in acquisition / investment and the high level commercial terms;
• Management Meetings – allows the management to make a direct pitch to the potential acquirer / investor and for them to discuss particular issues not covered in the Information Memorandum;
• Due Diligence – providing the due diligence to potential acquirers / investors can be undertaken through dropbox, folders, emails and / or dedicated software and each have pros and cons depending on the business, number of interested parties and requirements;
• Legal Documentation – if there are multiple parties still in the process, it will make sense to prepare the same sale and purchase / investment documentation so that all parties are bidding on the same basis and it is easier to control. When dealing with international acquirers (especially the USA), there is often a preference by them to prepare the sale documentation so they control the drafting, but this is at their expense.

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4. Appointing An Advisor

It is important to have an experienced adviser by your side if you are raising capital or selling your business to assist in the preparation, position the business in the best way to be attractive to acquirers / investors, to manage the process (which can be extremely time consuming), to access their network of acquirers / investors and to negotiate the best possible terms.

Conquest Capital Group has more than 100 years’ combined experience across more than $50 billion in M&A transactions and $10 billion in equity and debt capital raisings across multiple sectors.

If you would like a sounding board to discuss issues and potential solutions, please contact:

John Perry (Managing Director) on 0420 989 706 or?[email protected].

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