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Is Your Oilfield Service Business Ready to Sell? Here’s Why it Needs to Have “Curb Appeal”
One may not always think of selling a business like selling a house but in reality the two are a lot alike. Like buying a house, a business has to pass a buyer’s “home inspection” and the beginning stages of that inspection are having curb appeal. Granted, there are some buyers that are looking for a “fixer upper”, where they can buy a business at a distressed price and use their existing management to assess the business, keep the parts they want and discard the rest, including redundant employees. In these cases, there is usually some reason to buy the business whether it be a strategic location, additional complimentary equipment or some key customers that the buyer may not have. In most cases, however, what appeals to most buyers is a “turn-key” business with a good management team.
While the owner of the business may eventually transition out of the business, in the short term, most potential buyers are looking for a well run business that can be run complimentary with their current business or as an “add-on” to a portfolio of other well run businesses they may currently have, as would be the case with a private equity company. A buyer’s initial “look under the hood” is important. A bad first impression can easily turn off a buyer. Remember, the old saying “cash is king”, so those who have the cash make the rules and dictate the price. If there are limited buyers in the market, then having the business with the best “curb appeal” can demand a higher price.
“We have seen many instances where companies are approached about a possible sale that were not even for sale so it is always important to make sure your business is “sale ready” and in the best shape possible”, says Jeremy Rondeau, Vice President of MNP’s Oilfield Services team. He continues, “In a world of limited buyers, we have seen cases where a business not for sale is sold because the business was sale ready and the offer for the business reflected that. We have also seen cases where a buyer has quickly moved on because the buyer did not want to wait for improvements to be made or documents to be ready. You never know when interest in your business will come, so you have to be prepared.”
Here are some key steps that you, as an owner-manager or management team, can take to make sure your business has “curb appeal”.
Corporate Structure:
More than likely you may have the same corporate structure today as the day you started your business. While this may have suited your business at the time, it may not be the optimal structure for selling your business now. While maximizing shareholders’ after-tax proceeds is one of the ultimate goals, your current structure may not allow for it, especially if a buyer’s offer is imminent and there is not the necessary time needed to re-structure your company. It is important to engage an experienced oilfield services advisor in advance to assess what corporate planning must be done in anticipation of a future potential sale, rather than react to a current offer on the table with no advance planning.
A Buyer’s Due Diligence: Are You Ready?
A buyer’s due diligence is just like the “home inspection” of your business. Whether you were actively looking to sell your business or not, you should be ready within short notice for a buyer’s due diligence. Due diligence usually occurs in three ways:
1. Site Visit: A site visit will be one of the first determining factors of “curb appeal”. A site visit is where the buyer will inspect key assets such as equipment, inventory and facilities. Having your equipment well maintained, inventory (if applicable) well documented and facilities clean and organized will avoid the problems of having to fix problems that you may not have time to do. Remember, a buyer’s initial interest may just involve a “drive-by” of your business to observe your facilities and equipment so you could be turning away potential interest without even knowing it. Having a successful initial site visit is key to moving to the next step in the due diligence process and not raising “red flags” with the buyer.
2. Document Due Diligence: The next stage in the potential sale process is document due diligence. This usually involves having your advisor look into a number of key areas to make sure everything is up to date and well documented so nothing will get in the way of ca potential sale. These key areas include:
1. General Corporate Documents
2. Accounting Records, Taxes & Financial Statements
3. Intellectual Property
4. Labour and Human Resources
5. Disputes & Litigation
6. Licences/Permits/Environmental
7. Material Agreements & Contracts
8. Real Property-Ownership or Lease Agreement
All these areas should be looked into by your advisor and assessed for areas of improvement.
3. Management & Advisor Interviews: The next step in the due diligence process is management and advisor interviews. During this process, the buyer and their advisors conduct interviews with you, your advisors and your management team to clarify and confirm information gathered during the site visit or document review. Having advisors that can prepare you or your management team properly in advance will lessen the likelihood that red flags may be raised.
Deal or No Deal?
Any stage in the due diligence process, whether formal or informal, can kill a potential transaction or lessen the potential offer from a buyer. A home that has been properly maintained and cared for over the years is easier to sell. A business is no different. In the world of oilfield services one never knows when you can be approached about the potential sale of your business. Have a proper and well experienced oilfield services advisor look at your business in advance of any potential sale will allow you to make the necessary changes and give your business the best “curb appeal” possible and ultimately maximize any offer from a buyer.
About MNP’s Oilfield Services Team
To stay competitive and profitable in the ever-changing Oilfield Services (OFS) industry, you need to make the right business decisions at the right time. MNP understands the size, breadth, diversity and specialization of this major contributor to the Canadian economy. Whether you are public or private, our team of Oilfield Service business professionals have the skills and the industry knowledge to meet your needs.
Working closely with you and your management team, we develop a detailed understanding of your business and its unique competitive landscape and challenges. From there, we assemble a strategy and team of specialists to help you respond to change, assess emerging trends, mitigate risk and operate more efficiently, all with the goal of increasing profits and securing your business position.
For more information on MNP’s OFS services, contact a member of our team:
Jeremy Rondeau, Vice President, at 306.773.8375 or jeremy.rondeau@mnp.ca
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