July 18, 2023
June 16, 2022
TV-style recap moment: So, we’re in the middle of a global pandemic, the shit is as real as real can get and we have three offers on the table. The company valuation has given me a good baseline of knowing what we were worth, and now it’s decision time!
I had a decision to make on whether to sell, to whom, and for how much. Putting it that way makes it sound so simple, but the reality is a lot different. And I still hadn’t got my head around that valuation. C’mon… you’ve got this. It’s what the last few years have been all about!
For any of you reading this, you may or may not know that when you sell a company, no one rocks up with a briefcase full of millions, opens it to show you the money, for you to then nod and shake hands on the deal. Unfortunately. Not when you sell a legitimate company, anyway. I hope that hasn’t put anyone off reading the rest of this!
The reality of our process looked like this: three interested parties, getting to heads of terms with one and agreeing a period of exclusivity, followed by months of due diligence. Meanwhile, there’s negotiating back and forth on the valuation and the breakdown between cash and shares and an earn-out period. But I’m getting ahead of myself here.
Let’s have a closer look.
I used a tried, tested and proven model of Wardley Mapping to compare the three offers. I used the situational awareness tool to really map the companies. In doing so, I could see what crossover there was with the staff at Difrent and this was the single most important driver for me. By making the assumption that the customer bases of those buying the company are the same, which they were for all three. An extreme culture change would be a sharp shock that just wouldn’t work, and there was no way I’d entertain the idea.
We had one offer from a health software company, and one from a well-established managed services consultancy. Initially, my apprehension with the software company was that it may limit the experience to just one area, providing more of an uptake and adoption service around their product. Likewise, my apprehension with the managed services consultancy was that some aspects, like designing and building from a user-centred perspective, could be relatively ‘newer’ concepts to them. On paper, the managed services consultancy was financially far and away the safest bet and, if I’m honest, they were the one I fancied working for. On the other side, I knew that wasn’t the priority and I put a lower weighting on what I wanted personally compared to what I needed for the staff at Difrent.
I knew it was important to get the best fit for the staff at Difrent and for their futures. Apart from the time and effort I’d put into the company, you know the bond I’ve got with everyone and there’s no way this was going to be a, Fuck you very much and drive off into the sunset in a Lamborghini. You know the journey, and you know my way of thinking and working.
All three offers were more or less where we wanted them to be and, as odd as this may sound, we didn’t go with the company who offered the most money. It could’ve been very easy to get caught up in the excitement and gone with the highest offer. Absolutely. Instead, we went for the one that on paper looked the best fit.
I think the Wardley Mapping exercise was imperative anyway, but it did help me look at the offers from a more pragmatic and less emotional angle. I always trust my gut feeling and it was interesting to see how that stacked up against the facts. So the caveat to sell the business has to be to the right entity.
Panoply (TPX) stood out from the other two because they’d acquired companies with the same values and mission as Difrent (FutureGov in particular), and they had a desire to really focus on the health space with UCD at the heart of it. As a listed company, all of this information is in the public domain but, for relevance, the deal closed at £13.2m (total consideration, all in). Up ’til then, the negotiation process with the three interested parties had been a plate-spinner, without fully going through heads of terms with all.
Next, we put it to a vote across the senior management team. I gave everybody a vote, with mine and Steve’s vote carrying no more weight than anyone’s. The majority voted in favour of Panoply for many of the reasons I’ve shared, the consensus followed and we forged ahead.
We agreed terms with Panoply, shook hands with Neal and moved into an exclusivity period.
The valuation included the split of cash and shares as part of a sale. And we had to think about the earn-out period — in other words, the total value of the sale: what you get on the day you sell (‘A’ day) and what you get as you hit the targets during the earn-out. In my case, this earn out ended up being 18 months. This is a remarkably short period, apparently.
Our profile for sale (all in the public domain, so it’s not a boast) was cash and shares on ‘A’ day. Without giving the entire game away, we did well for the effort we’d put in over the years: we got a cash sum and shares, resulting in further shares at the end of the first year if we hit targets, and the same at the end of the second year. Kudos to Neal, as the shares have gone up since the deal was done. There’s a lot of complexity here as share prices rise and fall, and the shares at ‘A’ day have different restrictions to shares allocated as part of an earn-out. You can’t know for certain what this means money-wise, but you can have a good idea of best and worst scenarios.
To the best of my knowledge, there are no shortcuts to any step of the selling process.. As exhausting as it all was, you need to do it right. You work through chronologically, and need to be as active as possible. There was no passenger seat on this part of the journey. And hopefully there’s not too much repetition and overlap here, as I talk through such a complex process. Let’s get round that by saying any repetition is all on purpose and it’s kept in for double impact emphasis!!
The exclusivity period and then moving into due diligence are points to emphasise. The sale, to say the very least, was hard work and probably took us three months from start to finish. It felt like a very long three months because I was still running the business alongside it all. And that was definitely more learning for the future. I wouldn’t do that again — it’s draining enough with the BAU of the company and it was just putting unnecessary stress my way.
So, yes, exclusivity made way for due diligence. Prior to this step, I hadn’t been anywhere near the finances of the company, so this was the part I left with Steve as we proceeded with negotiations. Although I want to be everywhere and know everything, it was totally a case of ‘you can’t do everything yourself’. We were in it together and both had to do our bit. I focused on commercials, legal contracts, sales pipeline and operations because all of that was second nature to me. Towards the end of this phase, I was pulled into the financial due diligence and it was a real baptism of fire. This was another steep learning curve for me to even get up to speed, let alone adequately contribute to. Actually, I don’t even think calling it a curve cuts it here: imagine a near enough vertical line on a graph, rather than a nice curve. It was 0 to 60 in a finger click. I’m all for working outside your comfort zone and challenging yourself, but there’s a time and a place.
The whole of the due diligence period was bloody insane and the shopping list of ask’s was a full-time job in itself. In a nutshell, we had to build up as comprehensive a picture as possible of where we’d come from and highlight any risks the buyer needed to worry about. Then there were warranties: pages and pages of things you need to underwrite in case they ever come back to haunt the buyer and, just when you think you’ve got a handle on what you need to prepare, the specialists from the buyer’s side rock up to drill into the specifics on contracts and financials! If you imagine every question from every episode of Dragons’ Den in a montage, you might be close to how it felt. I came away with a completely different understanding of the company. The level of rigour reporting that you need as a PLC compared to running a startup was on a different league.
There was also the added complexity of selling to a listed company, because it all needed to be confidential — even from my management team — until a couple of weeks before we concluded things. Any information leaking out could’ve had an impact on the share price. The knock-on with this (of course there had to be one!) is that it became another extra burden to my workload. It meant a lot of work had to be done outside of core working hours, into the evenings and weekends. As we know from this… extra care and extra hours adds up to extra effort and extra stress. It was all work, it was all process, it was leaving no part of the business untouched and it all takes effort to get a job done.
We know every day is generally a school day, and every part of this was. I reckon when I get to the point of building and selling future companies, it will still be an education. You can know as much as you should on a subject, on the theory, and do all your second-guessing, but we’re all human and we all work differently. Who’s to say negotiating with one person will play out exactly the same as the next? I subsequently found out we probably should’ve had somebody in to negotiate on our behalf — certainly for this first sale. But hey, hindsight and everything, we weren’t savvy enough to know this at the time and went ahead and did it ourselves. And those smaller-but-still-imperative bits like having to be secretive, all the nuances you need to pick up immediately, and all the things you learn about yourself while doing it, well, they all make you stronger in many ways. Unknown territory can be a bit rocky ’til you navigate your way around the obstacles. And then maybe that next journey will be a bit smoother.
And, of course, this bit was always going to happen:
I had a period of panic about whether I really could sell my baby. Just as I’d assumed Steve had similar feelings when he relinquished control of his then baby. I’d put everything into getting Difrent to exactly where it should be. There was definitely the emotional tie, and this is where my double repetition will kick in: I was completely ‘loved up’ with Difrent at this time — the people in the business, what we were doing for clients, the difference we were making and, of course, being the boss and steering the ship! How could I walk away from it all? Could I walk away from it all? I’d still be part of it, but my role would change if we sold the company. I’d be working for someone else, implementing their Strategy and Vision.
This was the five-year-plan — done and dusted. Thinking back to that early conversation with Steve in India, well, it was apparent a while ago that the sale would happen. I turned my dream into a reality. It was exhausting. I felt like I’d crawled the last few miles of a marathon to get over the finish line. The relief was amazing. It had been eyes down for so long during the sale. Now I could actually look up. Who knows, I could even smile and start to enjoy it!
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