The global pandemic has not only given rise to what looks like a prolonged economic crisis, it has also shifted public sentiment towards consumerism. How the fashion industry will be affected in the long term is a difficult question to answer.
Looking at the medium term, there is one topic that we can jump right into: In today’s context, is it worth thinking about selling the business you built over the last few years or decades?
In short, the answer is “yes” if you believe you have reached a future stage where your company is more likely to benefit from being part of a large group than if it remained independent. As you know, large companies can easily flex their muscles in areas such as media advertising and purchasing, customer data and analytics, commercial partnerships, online and physical retail, IT and technology, logistics and finance.
Today, large groups tend to approach M&A with more humility and empathy than ever before. It is in their best interest to ensure that your brand, reputation, and income significantly increase once you join their “family.”
However, for an entrepreneur, designer, creator, there is a patent and understandable nervousness surrounding selling.
First, what will your life, your brand, your staff, your style, your savoir faire be like once you are no longer in the driving seat of an independent entity? Second, do you have the impression that you sold your business too early or not at the right time? Third, will the assessment match your expectations?
In all cases, there are ways to mitigate risks and reduce these justifiable concerns.
Red line, or how not to lose your soul when you sell.
It would be better if you start by listing all the elements that count and make up the fabric of your business. Some of them are trivial, while others are important.
The obvious subject is your brand. You want it to last a long time and not be combined, crushed or tampered with. You can also decide how free you should be to design and launch your collection.
But apart from this obvious topic, you’ll need to review and negotiate other red lines. For example, your close relationship with some of the craftsmen or suppliers you use; being forced differently can ruin your product, or even your creativity. If educating students is of the utmost importance, make sure you include in agreement with the purchaser several days per year dedicated to teaching.
Likewise, ethical sourcing, recycling, or environmentally friendly production can be the main activities. In this case, ensure that the terms of the contract protect your focus on sustainable design principles.
By insisting on including a specific red line, you are signaling to the buyer that you are serious about life after the deal is over. Buyers prefer to deal with demanding entrepreneurs because that underscores their level of commitment. Don’t be afraid to worry or stress openly… because it means you care.
The last thing a large company wants is to buy a company and accidentally destroy it over time. Addressing this red line, which may at first appear to be peripheral, is reassuring and increases the likelihood that your business integration after the acquisition will be smooth.
Perhaps the most important lesson is that buyers also want – or need – to learn from the company they are buying from. For example, a small company setting up a network of Scottish craftsmen or fair trade producers in Morocco or mastering the art of recycling by partnering with local authorities, can be invaluable to large firms, which tend to be less agile with projects and processes that are not of gigantic size.
Overall, a balance must be struck. Yes, once you sell, you are no longer independent, but you can certainly maintain the degree of autonomy that was mentioned earlier. Since your style, imagination and creativity are at the heart of what you do, you have to speak up. Not all future problems are predictable, but ensuring your red line is understood – and hopefully approved – by the acquirer, can limit future interruptions.
When, or when is the right time to sell your company?
You have a large mountain ahead of you, and you may be wondering: Should I go on my own journey, or decide to join an organization that can support and facilitate my ascent?
The best time to consider selling is to make sure that everything is going well. Don’t sell when problems arise, when you’re in a rush, or when your business is about to run into financial trouble.
If your business is in good shape and needs an opportunity, there are ways to work out a sales agreement so that you benefit from your future business performance once you are acquired.
For example, you may decide to sell part of the capital instead of 100 percent. You can also agree to receive a fraction of the sale price in different installments over the next few years, to benefit from the future growth of your company.
And you may also receive, in some circumstances, a partial payment in the form of the acquired group shares – if, in addition to cash, you have received LVMH or Dry shares 10 years ago, you wouldn’t complain today.
These options can be combined in many ways, but it’s fair to say that any solution you negotiate with will always have its drawbacks and risks. For example, if you sell 80 percent of your company, you will enjoy receiving dividends from future returns on the 20 percent you still own. When you decide to sell your remaining stock, you’ll only have one potential buyer to negotiate with – not the most comfortable position to do “push-backs”.
These schemes aim to enable you to benefit from future growth of your business so that you don’t leave too much money on the table when you sell.
Valuation, or how much is your company worth?
What is the optimal value that your business can achieve? The short answer is it depends on the view of the buyer. In other words, you can spend some time speculating… but the only way to find out is to ask the many potential acquirers questions. Each of you will see your company with their own eyes. They may focus on one aspect of your brand, on your personality or on the culture you build.
They may appreciate your ability to take advantage of your company and use it to conquer China or Latin America. They may find your product very complementary to their current brand portfolio. They may appreciate your typology of customer base. The list of parameters that affect valuation is long, and each buyer will have his or her own analytical – and emotional – framework.
That is why ratings can vary widely among potential buyers. I see multiples of up to four between the lowest and highest ratings for the same company.
It’s also a definite advantage to mention to a potential buyer that you are talking to another company. They don’t want to “get off the bandwagon” and should make the effort to follow up and make an offer if they are interested. As a result, your company price also depends on the number of interested parties.
Buyers are not likely to like formal auctions, but if they understand that their direct competitor is talking to you, it will simplify the M&A process and give you the ammunition when negotiating.
Ultimately, the only way to ensure that the offer you receive is optimal is to compare it to others. Synchronization is very important in M&A. You have to make every effort to accept offers at the same time. If you are stuck with one offer, can’t compare it, even if it is a good deal, once the deal is finished you can retain a bitter taste in the mouth.
Established fashion and luxury groups are eager to buy business. Each has its own reasons and strategic goals. Ultimately, it’s a sellers market, in your favor.
And if you decide to start the sales process, and end up not finding the right acquisition group with the right offerings, you can go back to growing your business independently, until you decide, in two years or two decades, to take the same approach. buyers again.
One thing to note: Regardless of the outcome, going through the sales process is a great way to learn about your company and yourself.
Christophe Cauvy is a partner at Intersection M&A Ltd., an M&A advisory firm based in Oxford, UK.
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