Melbourne, 2 April 2012: Owners of
privately-owned businesses should ensure they are sale-ready and
able to move quickly if they receive an attractive purchase offer,
or risk failing to maximise the true value of their investment,
according to Clayton Utz partner Nick Miller.
Nick, who specialises in negotiated merger and acquisition
transactions and has acted for both buyers and sellers, including
private equity funds, said a business that is poorly prepared for
sale can potentially result in the loss of significant value. This
could be avoided if potential roadblocks to a successful sale were
addressed well before the business owner received any approach to
"Privately owned business represent around 97 per cent of
all businesses in Australia today, and forty-five percent of
private business owners say they are actively planning the future
sale of the business," said Nick. "Ensuring that the
business is ready to respond swiftly to an approach by an
interested buyer means getting your house in order first
– even if no-one comes knocking immediately. This is
especially so as private equity interest starts to pick up
– presenting more opportunities for an exit but also a
type of buyer who will discount value for perceived
Nick said there were several common but often overlooked issues
encountered in privately owned businesses that reduced value,
including problems with intellectual property, structure, key
contracts and employees, and data room preparation.
"For example, a business owner may think the business owns
the rights to key intellectual property such as domain names and
logos, but finds out that, perhaps during an earlier acquisition by
the business, these rights have failed to be acquired, or properly
registered," said Nick. "Engaging a contractor to design
and provide content for marketing tools such as catalogues, or a
website or logo, or to write a critical piece of software that now
provides a competitive advantage, can also create problems if the
ownership of copyright is not expressly dealt with in the terms of
the contractor's engagement. Otherwise, the contractor will
usually own the intellectual property in their work, meaning that
the business owner will not own a critical asset of the business
that the buyer will be expecting to purchase."
The way the business is structured may also mean it is not
readily transferrable to a buyer, causing potential headaches.
"An example of a structure which can present problems is where
a single company operates a number of businesses and buyers are
likely to only be interested in one of the businesses. That is,
no-one is likely to want the whole package. Practically speaking,
the only way to sell is by a business sale. However, in certain
situations selling in that way could present a serious
problem," said Nick.
Nick said increasing the level of formal governance in some
privately-owned businesses can assist in reducing risk, identifying
issues that might emerge upon a sale and generally enhancing the
credibility with which the business presents to potential buyers.
This might involve establishing an advisory board, for example,
members of which include parties external to the business.
"Most of the common barriers to the successful sale of a
privately owned business are all fixable," said Nick.
"Ultimately value is maximised when the owner identifies these
issues early on and there is some time to deal with them.
Preparation is the key to maximising exit value."
1 MGI Australian Family & Private Business
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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