What you need to consider when selling a business, with Bluebox Corporate Finance | Legal Thinking Podcast

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Hello and welcome to Legal Thinking from RWK Goodman, and for this episode only Bluebox Corporate Finance as well. In this episode we're joined by Paul Herman, Founder of Bluebox and our own Tanya Shillingford from our Corporate team, who will be talking to us about selling a business, and why the timing of selling a business is absolutely pivotal.

So I’ll direct my first question to towards Paul – Paul, when is the best time to sell?

Paul: Liam it’s a great question to open up the Podcast with because it’s - I would say probably the most important question that vendors need to consider. And timing - and the timing of an exit is – is of fundamental importance. And the challenge with timing is there are two sides of timing. There’s the bit of timing you can control. And the bit of timing that’s out of your control.

Let me give you a quick example. You’ve got – as a business owner, you’ve got a new MD joining. You’re about to launch a new product, in a new territory – you’re about to engage with your customers in a different way, and the question is – do you engage in a sale process in advance of making these changes, or after these changes? You’ve got the luxury of effectively deciding, you know, when you sell - based on those internal decisions that you’re going to be taking.

The challenge with timing is, there’s another side, which is timing pieces that are outside of our control and I say for – for humanitarian, as opposed to financially driven reasons – but on September the 11^th, as an example, all transactions came to a halt. They all – they all terminated. The vendors were in a business we were working with, were about to launch into an exercise, and clearly timing was determined by the impact from external factors. And our view, and our view at Bluebox, is you shouldn’t be overly concerned. You need to be mindful of what’s happening in the external environment, but I can assure you that very few people saw COVID coming, or for that matter, very sadly 9/11 or the July bombings in London. And these are things that take things out.

So you have some eye on, you know, managing the sensible level of risk, but internally, you can take a view based on what initiatives you’ve got, and the challenge is that many initiatives will have the promise of upside, but they won’t be delivered. So, the acquirer will be taking a risk – you’re promised that the new MD is going to be fabulous, or the new territory is going take off – and if you waited for those to be demonstrated, and waited for the CEO to be wonderful, or the new territory to take off, you’re inevitably going to secure a better price. The challenge is, what happens is what happens if they don’t pan out quite as you’ve expected.

If you look more generally, in a very – I suppose the stock response we would give to clients is the two best times to take a business into the market, are ideally in January/February/ March or in September/October. It would be foolhardy to launch a sale exercise with summer directly ahead of you, because managing competitive tension and managing the pool of advisors through a summer period can prove challenging. So ordinarily you’d look to launch an exercise – you can do your prep work in advance of that, but to actually start speaking with target buyers in January/February/March is a good place to be. Or, alternatively, wait until after the summer.

So there’s a lot to discuss, as I’ve just suggested on timing, but it’s such a very, very important question, Liam.

You’ve touched a little bit upon it there, but why do most business sales collapse? 

Paul: Well business sales collapse, and in fact it was the genesis for starting Bluebox, because we started to do some research when I was formerly working in both private equity and corporate finance, and we started looking, and in fact there was some research at the time that was done by the – or that published in the Harvard Business Review, which suggested that only 10% of deals that actually went into the market, were being successfully completed.

So, we started looking at exactly that question, Liam, why do these deals collapse, and what’s the reason for them? And we broke the responses down into a number of different categories.

I think at the top of the tree, I’ll be careful what I say here, because it’s… I know it’s a public podcast, but we see in effect where people are over-promised on pricing, and they’re encouraged by advisors to move into the market, at a pricing level that was never going to be achievable through a process. So, you know, John Smith, whose business was worth 6 million quid, but never ever wanted to sell it, was encouraged by said advisor to approach the market, try and sell it for 10, 11, 12 million, and surprise-surprise, the deal was never a success and a result wasn’t forthcoming. So making sure that you’re expectation on price is, you know, has some validity is a very important piece, and the way to do that is to speak with people in the know, and we’re more than happy at Bluebox to speak with people who’ve got a business, and give them a sense check. But don’t be swayed by – dare I say, without slurring a whole community, but kind of an estate agent mentality – oh yes, Mr Smith, you’re business is worth XYZ, it’s never going to be delivered. So that’s – that’s a very common reason.

The second reason, I’m delighted that Tanya is able to support the podcast here, because she’s done a fabulous job with many of our clients, but the challenges that appear in due diligence. And due diligence, as Tanya will say later, includes and can cover a whole range of topics. And quite often, these transactions – because we tend to work with the smaller businesses, you know, most certainly in almost all cases, under £100 million of value, they’re just not prepared for this exercise. So they don’t have their IP sat in the right place, they don’t have their, you know, the right pieces in place to allow a pensions due diligence exercise. So issues that arise in due diligence, are very often the causes of failed exercises, which is why, again, either with or without an advisor, it’s well worthwhile to make sure that you’re fully prepared for a due diligence exercise, and you’re preparing, because due diligence is reason number 2, is a fundamental reason why exercises fail.

And we then move on to trading. I mean we very often see transactions where, you know, a client has said that they’ll be delivering profitability of X on revenue of Y, and for whatever reason, that trading is not achieved at that level. Obviously that has an impact, invariably, on the price at which the transaction will be executed. Buyers aren’t able to stand behind offers that they’d made, and a deal comes tumbling down.

So, trading and poor trading through an exercise is, again, a very common factor and what I would say, Liam, is one of the real bits of advice to mitigate against those risks is to ensure that when you’re going into the market, you’re presenting a business with a forecast that has some suspension in it. You’re not trying to put something forward that’s you know, eking every last penny out of the business, because not meeting your forecasts and your trading, through a period of due diligence, or through a sale exercise, is fatal – or is often fatal, and it’s something that can be avoided. So going in much more conservatively, with your numbers to begin with – the pricing that the buyer ultimately puts on a business, is not determined by the first set of flash numbers they see. They’ll see the numbers, they’ll digest the numbers, and inevitably they will be follow on meetings, engagements, as I think it’s known in the trade – the dog and pony trade – show continues. And on that basis, you want to be providing more robust numbers, as you move through, and as you move to a point where someone’s going to put pricing together – you’d first of all send someone a document for them to review. They won’t simply come back and say “we like the document - we’re going to pay you nine and a half million pounds”. They’ll say “that looks interesting – tell us more”. And when you’ve then been through the exercise of telling them more, giving some background to what the business does, what the growth opportunities look like – we’ll come back to that later, but of fundamental importance, at that point you might supply some further numbers, and you’ve still probably got an audience of several buyers who are looking at the asset. And you might then present some numbers, which are more aggressive, but you know that are going to be delivered. So making sure you’re not overcooking the numbers, because poor trading through an exercise can kill a deal and so providing yourself with suspension in advance of that, is an important piece.

And then the last kind of category, is around misalignment of objectives between various stakeholders. I mean this is a – you know, this is the SME market – the small and medium size business market. And that comes with its – the wonders of personality. You quite often see in small deals, misalignment amongst the shareholders. Misalignment between the shareholders and – dare I say, the management team. And intra-management team and intra-shareholder base. So making sure that all objectives are aligned at the outset to make sure that we have a coherent objective, that is not with divergent objectives, but everyone’s aiming for the same goal. Obviously, Liam, you will have situations where different people want to move slightly in different direction. That’s one of the skills that a corporate financier should be able to bring. It’s the cajoling and the rounding up of the shareholders, in a way that you’re fair to all. But if the objectives are too divergent, then it becomes a much more challenging exercise.

So, why do they collapse? Mismanage expectations, due diligence and issues that appear in due diligence, trading of the business and finally misaligned objectives between key-stakeholders in an exercise. 

And again, you’ve touched upon it a little bit there. But how will acquirers value a business, and what considerations will be made? 

Paul: Well that, that’s of course a question on which we could dwell for literally – I was going to say hours, but I suspect days, Liam!  And the answer is that most of our clients are driven by value. Not all, interestingly, but a bunch of them are. And the overall majority are. They want to see share value, they want to realise full value for their business. And what they don’t want is they don’t want a textbook valuation where someone turns round, gets a – you know, your profitability whether that be EBIT, EBITDA, operating profit, net profit – and they apply by a multiple. What we actually want to achieve is – we want to achieve a strategic premium. And identify a buyer that doesn’t just pay textbook value, but actually sees above and beyond where the opportunity might lie. And that tends to come through what we would describe as ‘sell-side synergies’. This is the ability of a business – a buyer – to sell their product into the target’s base.

So all of a sudden we have a business that they’re thinking about buying, and there is a incremental product that can be sold that that incumbent base of the target. And the flipside is it’s selling the products of the target, into the customer base of the purchaser. And it’s those type of synergies – I mean we’re dealing with people at the moment who, as our client, have a very tight – tightly controlled and difficult to penetrate market as a customer base. The attraction the value being ascribed to the business is derived from the purchasers, which in this instance come from overseas in the States, being able to see the UK business as effectively their beachhead to move here, but a bunch of relationships into whom they can sell product and, apart from anything else, there’s some fairly significant barriers to entry, and this acquisition provides that.

So, valuation is a really interesting, and complex topic. In fact, after I’d qualified as a chartered accountant, I was with what’s now Price Waterhouse Coopers, and was in their valuation team and learnt very quickly that I could write a 400-page report, that could come up with two very, very different answers. So valuation, as you would have heard is a very much an art, not a science. The methodologies that you would typically use fall into a number of categories and I’m sure your listeners would have heard of the comparable company analysis where people effectively take a look at the market, they look at the… because your business is unlikely to be quoted. There’s not people who are buying shares in your business. You can’t see the price at which people are actually buying your shares. You can, if there’s been M&A in your market, but otherwise it’s very difficult to see.

So what people do, is they look at the profit in multiples that people are achieving. So they see that someone in the market is, for example, just using some very simple maths, they’ve got £10 million of profit, their share price shows they have a share price of – pick a number – £70 million. So we know that they’re trading at 7 times profit. And so what we would do is we would use that multiple and apply it to where we are. Now, that’s a very flawed methodology.

I was once selling a business many years back, called Watches of Switzerland, which was a retail business, and the buyers decided to look at some comparable company analysis. Said we’re a retailer, and therefore we’ll look at retail multiples. And they looked at the multiple that Tescos was trading at, they looked at the multiple that H Samuel was trading at, they looked at the multiple that a number of the other supermarket chains, niche retailers were trading at. And it was completely flawed of course, because it was a different scale, there was a different growth opportunity. There was a different strength of management team, there was a different level of maturity in the business, there was a different level of liquidity in the equity, because it wasn’t as liquid as it would be in a – in a public business. So ordinarily there are flaws, but people will use multiples and do this comparable company analysis as a starting point – finger in the air.

And thereafter you’ve got other methodologies. You’ve got the purest, from a mathematical standpoint, which is a discounted cashflow analysis, which comes back to a net present value, where you effectively take what you’re expecting your future cashflows to be and you discount to today’s rate, based on a blended rate of what the debt and the equity is costing you and your business, and you arrive at a day one value. Mathematically sound, except in my experience 99 out of 100 business owners that we speak with certainly don’t know to a penny what cashflow their business is going to be making next year. So, there’s a big area of guessing around that. And then you’ve got asset-based valuations, where you’re looking at a valuation – and that tends to come with the asset heavy businesses. So nursing homes, hotels, something with a very significant property element might be valued on that. And then you’ve got – you know, the rather lofty ambitions of many in the very attractive world of software and SaaS businesses and the more modern-day business where what you’re doing is you’re looking at how the growth of business will be so significant that you should deserve – and you’re not making any profit likely – so you’re looking at a revenue multiple.

So the answer is there’s no single methodology that can be applied across all instances. It’s very much a case of what it’s worth to the buyer. It is certainly the case that some businesses have a much broader distribution and value than others. We see some and we say - look, that’s going to be worth between - picking numbers – £6-7 million, or £13-15 million – and others we see, we say you’re going to get somewhere between £10-40 million. And they look at us as if we have no idea as to what we’re doing. But the reality is it depends on what basis, and to what value a purchaser can add some clobber there. So it’s a difficult question. Those are broadly the valuation methodologies.

The bit I would absolutely point to, is the year in which – to which you’re applying these multiples. And I had the pleasure of selling a business called GÜ – the chocolate desert business where we ended up with, as I said it was a very good case study, because we ended up with a multiple of over 50 times. And of course the phone didn’t stop ringing when we presented that to the market. The reality was no one had bought it for 50 times earnings. They’d bought it for a far more sober multiple of where the future was likely to be. And it’s that credibility, and that visibility of the future – and if you can convey that, get a much more sober multiple of the future, you may well find that you’re ending up with the best possible price of all, and the presentation of that, which is why we spend so much time at Bluebox at looking at that, is of fundamental importance.

And why is it important to plan as far ahead as possible, if you may be selling a business? 

Paul: Well, there’s two things that timing provides, Liam. The first is an opportunity to go through checklists, and you know, I know it’s something that Tanya and her team do so incredibly well, and your practice does very well – it’s making sure that you’re prepared well advance, because you can go through your IP, you can go through your employment, you can go through your stat books, your corporate matters and make sure that your commercial contracts, your GDPR – I mean everything that you need to check needs some time to resolve.

And some things are very simple thing – you know, a shareholder has lost their share certificate – well, you know, hey-ho it’s an few hundred quid on the legal fees sadly, but it can be recreated. Other things need more time. Things like IP. Areas of pensions, which are relevant to some businesses. They that are very difficult to remedy with no time. So making sure that you go through and look at everything you’re going to be needing through an exercise, and tackling that to ensure that you are ready.

So that’s what I would call the checklist – the tick box exercise. But over and above that is the positioning piece. And there is nothing better, in my mind, which is why a lot of our business is set up in exactly this way, of making sure that the business is positioned in that year, two years, three years in advance of an exit. We’re often asked when’s the earliest time to get us involved, and the marginally facetious but absolutely honest answer is – is on day one. Because business models, and how you set your business model up can have a dramatic impact on the value you achieve – quality of the income, the nature of that income, the type of growth you can expect and certain things that you are driving for within the business.

So as well as and on top of the checklist that you can do, you will need to make sure that there is a properly positioned plan. The analogy in houses, interesting, I am speaking with a friend the other day, who’s absolutely thinking about moving house, and the first thing they’ve done is they’ve spent three and a half thousand quid on some rather glamorous and very extensive planning position. And the question to me is – is that three and half thousand quid going to be returned through a sale exercise and the answer is “absolutely, yes”. Because it gives the buyer that vision, as to what it could be. And in exactly the same way, if you do the analysis of that buyer universe at the right time, in advance, creating a model is so important.

And I’ll just leave you with one thought – when I started the business, as you’re aware, with James Caan, the former dragon from Dragon’s Den, who I’d sold a number of businesses for, and James was buying, as you do, a rather glamorous apartment in the middle of Mayfair – and we were sharing an office, and he said, “look, I wouldn’t mind you having a look at this brochure that’s been done by one of the big property guys” – I couldn’t remember whether if it was Colliers or James Lang – I can’t remember who it was, but they’d put a brochure together, which showed how he should have this apartment decorated. And he said, “what do you think?” And I knew James pretty well, and he knew I was very direct, and I did say to him, “it’s absolutely awful”. And his response to me was “but this pool is all about Bluebox”. I was pretty shocked, because we’d only been in business at that stage about six months – I didn’t know what he was saying.

But of course what he was saying was that the people who’d done this plan, for the flat, had actually looked at who the buyer was likely to be in that block. And at the time there was – I think it was a block of seven or eight apartments, and they were all occupied by middle-eastern buyers. And they had a very different requirement and taste in décor to that which, you know, others may have had. And what they had very cleverly done, is they’d painted the picture in the best possible way for the audience that was out there.

And in exactly the same way, I would make sure that the picture that you’re painting, for your business, is the most attractive in the context of the buyers, which obviously puts that extra step in, to make sure you know who your buyers are going to be in advance of creating that plan but for us, that worked in advance – in addition to the checklist piece, is important – and that’s why timing, in getting people involved early, whether that be us, or a another, is of real importance and can drive very significant value.

Thanks very much Paul. I think we’ll move on to Tanya, and maybe you might be able to input as well on some of these questions. But, Tanya, the first question I had was basically how can a business owner prepare, if they want to share proceeds through EMI when they sell? 

Tanya: OK, so this neatly fits in with what Paul has been saying about timing. So, you might get to the stage where you’ve done all the work with Paul to prepare the finances, got your offers, chosen one and then decide – oh I’d quite like to reward my key management team, or certain shareholders.

Now, if you do that at the last minute, and if the sellers sort of give part of their sale proceeds to the key management team, that’s going to be paid out of – tax proceeds and it’s not very tax efficient, because the employees are largely likely to suffer employment taxes, Income Tax and NIC. So, think well in advance about share options. So EMI share options are a very tried and tested way of incentivising your employees. So it also has that, you know, incentivisation piece to it. But they also have certain tax benefits.

So, broadly speaking, instead of rewarding your employees through cash, which is taxed as to Income Tax, if you give them share options, which are exercisable only on an exit, then you can devise it so that they effectively pay Capital Gains Tax. And the reason why you should think well ahead about this is everyone’s heard of entrepreneurs’ relief, which is now called business asset disposal relief – so if you have granted options to your employees two years before the disposal, then they can qualify for this entrepreneurs’ relief, which brings their Capital Gains Tax bill down from 20% to 10%, if all the requirements are added.

So it’s something to think of well in advance of the actual sale, in terms of rewarding them, but also as a way of incentivising them to grow the business and achieve that / maximise that value of your business.

Yeah. And I mean, Paul kind of touched on some of the elements of due diligence that need to be done, and the idea of doing a check box exercise, I wonder if you could just run through the areas of due diligence that sellers should be prepared for, basically, when they’re preparing to sell?

Tanya: Yeah, so Paul has touched on this. What happens in the sale process, when you get to that stage, is the buyer will want to know absolutely everything about your business, as Paul has alluded to.

So, the preparation – so you’ll receive a legal due diligence questionnaire, which will ask about everything – litigation, employees, contractors, intellectual property – what you don’t want to find is at the last minute of the sale process, that you find these skeletons in the cupboard, which then have to be resolved – but by that stage you’ve got a gun to your head, in the sale timetable, and if something is discovered late on, then there’s always the possibility for the purchaser to re-negotiate their price downwards, because they’ve found a problem, or they may want to seek indemnities from the sellers. So that if the problem does come to light, then the seller has to pay out and the seller would want to avoid that, because he wants to take your cash off the table and not worry about it for the next seven years or whatever it might be.

So yeah, as Paul says, start putting in place very early - and a checklist process works well with this, making sure all your employment contracts are all up to date, they have everything that they should say in them, have you got any – all the passports, copy passports that you have to collect, as an employer, if you – and are all your general trading contracts in writing? - do they have full terms? - and also intellectual property – Paul, I think you wanted to jump in here? 

Paul: Yeah. I think, I completely agree Tanya. What I would say is I think there are certain areas of the due diligence that need to be prioritised because of time.

To give you another example, I mean I’m walking around a manufacturing site in Luton the other day, and there’s – you know, it’s a chemical rich environment, it’s all well and good being prepared for, you know the employment due diligence, which can to a point be done much later in the day, when you wind forward and think, you know, I might have a US buyer that’s going to be walking around this factory, they are absolutely paranoid as to – and the environmental liability. They see some – you know, bubbles frothing from a number of drains – and I can assure you, the first thing they do is they’ll say – right, we want to do some environmental due diligence. The challenge on environmental due diligence, which is relevant in a couple of areas, is it takes time, because when they decide, three days before completion, that they need to drill six boreholes, and watch them fill up for the next eight months, to check there’s nothing nasty in the water tables underneath the property, you are very much in the territory of having a broken process.

So there are certain things, I think, you can leave with time, and others that you can’t. I think a lot of people see due diligence as being financially driven and very much akin to an audit, and it’s not – it's – it’s almost an audit of your management accounts, rather than just the fin stats – the financial statements that you’ve submitted to Companies House. And showing the picture and the trends and the growth, and the opportunity map within those statements is of fundamental importance, because that’s what’s going to be driving value.

So making sure that you’re preparing not just for a financial exercise that’s going to be akin to an audit, but saying how should we present our management accounts, and make sure that the reconciliations are appropriate, in advance of going to the market… and that’s the bit, I think, Tanya, that needs – that needs a lot of time. And as you’ll all know, and we all know, that due diligence – I mean you always get hit by something that no one has contemplated. So, being as rigorous as one can, in ensuring you’re preparing in all areas – reasonable areas, is of fundamental importance.

And one of the areas, I think you both mentioned a couple of times is intellectual property, and Liam and I know from some of the Podcast episodes we’ve done in the past that intellectual property is incredibly complicated, as most areas of law are! But I just wonder, Tanya, if you have any examples of why it’s particularly important to consider intellectual property in a sale? 

Tanya: Yeah, no… this is a very key thing. Because most businesses will have some form of intellectual property. Or you might have tech companies where they have a software product, which is just absolutely fundamental to their business. And the common thing that comes up is, they may have an in-house IT development team, or they may also use third party IT developers for them.

So I had one where fantastic software product, we’re quite far on in the sale process and the seller asked for – you know, where are all your assignments for all this intellectual property that’s been written for you by the third party developer contractors. Now these were not employees, these were third party contractors, and the client says – well I, you know I had paid their invoice, don’t I own it? And strictly speaking, at law, no you don’t. You really need to get a formal assignment to get the full rights to that. So our seller had to go and approach the third party developer, but by that stage the sale was in the offing and the developer demanded quite a sizeable amount of money, so that he would hand over that piece of paper, because he knew that the seller was up against a timetable.

So, that’s a word of caution but I would say, as a general rule, even if you’re not contemplating a sale, do make sure you get your IP sorted at the outset, so that you do own all your rights, and don’t run into problems.

Paul: It's a really interesting point because I think lots of the businesses that we see, you know will present absent any IP. And, in terms of what the vendor believes, they believe they have very little IP and you turn around and say – well hang on, what – because they’re not in a development environment – a lot of people will associate certain IP, certain in terms of the IP that’s creating value, as that which is associated with software or other development – of product within the business.

But I’d argue that almost all, if not all, businesses will have some form of IP, because they’ll have a brand, and they’ll have a website and they’ll have a logo. And I can assure you, we’ve been involved in many a battle where there is a conflict and there’s not a very… you know there an associated business that are hanging off that look a little bit similar – oh yeah, we split up from them six years ago and they’re nothing to do with us now – well if I were a layman and I was doing a Google search, it’s very much to do with you. It’s almost an identical logo – so making sure that an IP review is done, in all businesses – if only to say, look we have no IP apart from our brand – and that’s something that that you and your team Tanya, are able to sort out very quickly and actually quite cost effectively, if I’m right, so, that is a starting point.

But you’re absolutely right, the longer you leave it towards a point where the transaction is in the offing, and to the extent you have even marginally mischievous developers that recognise there may be an opportunity here to grab some extra dosh, it becomes more challenging. So again a reason, Ed and Liam, to make sure that you’re doing these things very, very much earlier than you ordinarily would.

So obviously Paul you covered earlier that there can be misalignment between shareholders and management teams in a sale sometimes, I just wonder Tanya how should you manage shareholders in the event you want to sell and can minority shareholders be forced to sell, if perhaps they’re not quite aligned with the goals of the management team?  

Tanya: Well this is what you want to think about well in advance and not just before the point of sale. If you’ve got several selling shareholders, including some minority shareholders who might not be involved on a day to day, you don’t want those shareholders holding you to ransom and saying – well I’m not going to sell at this price – I want a bit more, I want a bigger chunk.

So thinking ahead, when you set up your company, thinking ahead before you get to that point, where you’re making decisions about a sale, you can have a reasonable conversation with your group of shareholders and say – and introduce the concept of what we call “drag along rights”. So this is where, let’s say you have 51% of the shareholders decide that they do want to sell, if it’s 51% who say they want to, then they can force the others to sell alongside them, and that helps you, in terms of, you know, having those conversations well in advance, that they could say – yep, that sounds reasonable. I can trust the majority to seek the best price that they think is achievable and therefore I’m happy to be – go along with it, ‘dragged along’.

So that’s the conversation best had right at the outset, not at a point where you actually have a sale on the table, and I have come across this situation where they just didn’t think about that at the time. Everything was going swimmingly, they didn’t have a Shareholders Agreement or Articles, which included that provision. And then you get to the pinch-point where a nice sizable offer came in and some of the shareholders didn’t want to accept it, and they were completely stuck. So I’d say definitely have a look at your Articles, or Shareholders Agreement, if you have that, so you can have that reasonable conversation, when it isn’t under pressure of the sale process. And Paul, you want to chip in?

Paul: I think the concept – the commercial concept of drag along and obviously the other side tag along where – which is the minority protection, where you can tag yourself along, if a deal happens, the concept of drag along is good.

The challenge, in the real world, is that when you are dragging shareholders – you know, I’m a 60% shareholder in the business, and let’s say Tanya’s a 40% shareholder, and there’s an acrimonious relationship, just to paint a picture between the two shareholders, but there’s a drag along provision. So I can insist that Tanya effectively sells, and she’s forced to sell her business. One of the challenges with that, and I’m sure you’ve done in your other series of piece of warranties and indemnities and how they operate around a transaction and why they’re so important – but without going into too much detail, the challenge is that the buyer – if Tanya is dragged along, unceremoniously, and kicking and screaming, she’s less likely to be in any way, shape or form compliant from a warranty standpoint, so it has an implication that if she’s very involved with the business, I might be – she might say “look, you can buy my shares from me, you can drag me along to a sale, but I’m not going to provide any warranties”, which can have implications for not only the appetite of a buyer but also the price at which a deal is executed. So, your drag along provisions are there I think the best resolution, in all of these deals – if possible, it’s not always possible, sadly, is to rise above any emotion that sits there between the various stakeholders, which is easier said than done, clearly – but rise above that and try and agree things amicably. Because the minute you get into the world of having to enforce these drag provisions – drag along provisions, that Tanya’s just explained, it becomes difficult commercially – sorry, it can become difficult commercially. So there’s caution around those, in an M&A.

But again, it leads back to the conversation we had earlier, sort it out earlier. You need to make sure you’re tackling these things, getting things aligned and prepared early, which is why you know that early engagement with your lawyers, your corporate finance advisors is so very important.

Tanya and Paul, thank you very much for your time.

About Bluebox

Bluebox Corporate Finance has a professional team that works alongside their clients delivering market leading, pre-sale planning services, from up to three years before exit. The team then provides advice on the sale or fundraising exercises themselves, with at the heart of their offering, the award winning, Blue Diamond programme.

The Bluebox team has sold more than 100 businesses, including the recent sale of the world’s largest landmine clearance business TDI to US hedge fund A&M, the sale of kids top end fashion business Base Childrenswear to JD Sports and the sale of KK Fine foods, one of the UK’s largest ready meal businesses, to Belgium food group Ter Beke.  The team enjoys a high profile as a result of their exceptional track record including the sale of one of the UK’s most notable vaping businesses, Vapestick, the sale of Princess Yachts to Bernard Arnault and the sale of Gu Chocolate Desserts to one of the UK’s largest egg producers.

To find out more about Bluebox visit blueboxcfg.com.