Chris Chapman founded My Business FD in 2008. The company specialises in providing part-time finance directors to businesses in the technology sector, as well as the hire of interim or full time FDs to a broader range of businesses.
Chapman is passionate about small businesses getting access to the kind of top-level financial experience that is often reserved for bigger, more established firms. He believes this is absolutely critical when a technology business is preparing for an exit, whether an IPO, trade sale or other alternative. Getting the best price is not just about the technology you offer, it is also about making sure your business model, team, structure and track record is the one the buyers with the biggest wallets want to buy.
Chris, we’ve all heard about billion dollar exits to the States. But what do you think we are going to see in exits for UK companies at the lower end of the market?
Most of the exits we see are IPOs or trade sales and it is true that there’s a real feeling in the market that the only place for successful exits these days is the US. That’s really about the fact that the big players with the deepest pockets are headquartered in the US so it shouldn’t be a big surprise. But we’re starting to see a shift, and early-stage technology companies are definitely seeing more opportunities in the UK.
The last few exits we’ve worked on have been in the UK. A case in point is Proxama’s listing on the London AIM market in August. I see this very much as a growing trend and I think we are going to see a lot more of that type of activity in the next 12-18 months.
You’ve worked with a lot of businesses as they go through exit. What do you think are the secrets of a successful sale for an SME?
There are many factors to consider and plan for, but one of the most important is that it is vital to separate managing the process of preparing for sale from what you are doing to run the business. Due diligence is getting tougher and tougher and buyers will examine every nuance of your financials, commercials and contracts. That’s why you need to have someone in your management team who is responsible for managing the sale and nothing else. The rest of the business has to be insulated from that process as you still need to hit your numbers and continue growing the business while you are in the process of selling it. I’ve seen it happen too many times that the MD of the company focuses on negotiating the exit and the sales performance falls away and so does the buyer. There's little that will put a buyer off more than not meeting forecasts or budgets in the middle of discussions.
So how do you help businesses through this process?
We have experts who have worked on multiple sales and acquisitions throughout their careers. It’s actually quite a complex and very time-consuming process. In any sale there is protracted due diligence, lawyers, contracts and a number of other professional advisers to deal with. Buyers are a lot more choosey than they used to be and worst-case scenario is that your due diligence doesn’t stack up and the buyer walks away. Even if that doesn’t happen if you try to do it all yourself there is a real risk that you end up giving away too much value because the buyer sees the company underperforming and negotiates down the price. Our experienced FDs go in and stage manage the whole process pretty much from start to finish.
What sort of things would you expect an expert to look at?
It can vary massively from business to business and sector to sector, but essentially it is about making sure that the business will continue to hit its numbers that justified its sale price, once it’s part of a larger organisation. This could include normalising profits. What that means is that sometimes the MD can be taking a nominal salary and re-investing everything back into business growth. Alternatively the MD could be taking a much higher slice of the profits out of the business to fund a particular lifestyle. Normalising profits means adjusting the accounts to show a salary against that role which reflects what the new owners of the business would have to pay a member of staff to drive that growth. It can be key in demonstrating a return on investment for the buyer.
You work a lot in the technology sector. What sort of exits do you think we are going to see in that sector?
What I call the “internet of things” will grow and grow. What I mean by that is massive growth in contactless technology connecting devices to make them smart and intelligent. I think we’ll see desktops finally die in the wake of mobile and tablets. 3D printing will start to become far more widely understood and adopted and near field communication (NFC) technology will become embedded in more and more environments. What sort of exits? I see them as being even more driven by how you are able to manipulate data, interface with users and develop new applications to use technology to interact with the physical world. One example of that is Proxama who we have worked with for nearly 4 years. Their NFC technology on smartphones enables you or I to tap our phone on the Guinness harp on the top of the beer pump in our local pub, to see if we've won a free pint. Already incorporated into over 11,000 founts, the entire UK Guinness estate will soon be activated and is the first example of a major brand leveraging NFC technology to engage directly with consumers in a whole new way.
Chris Chapman