Business Sale (Funeral Directors)

ibv were asked to represent a funeral director in the sale of their business. It was known within the sector that a few large corporate businesses were operating on a sector consolidation basis, providing a much quicker route to growth of market share than the alternative of opening new operations.

The business we represented had bucked the trend of many smaller businesses in their sector, and had after only four years already gained significant market share in their geographic areas of operation to the detriment of more established larger corporations, as well as the smaller owner managed businesses.

The shareholders felt the time was strategically right to sell for the following reasons;
It could be demonstrated that business growth was still on a steep upward projection
the consolidators were head to head with each other in terms of size and desperate to beat the others
the start up market was becoming saturated as the cost barrier to entry is very low
profit margins were under pressure as lifestyle entrants worked cheaply to achieve just a minimum return.  
All four corporate consolidators were approached and quickly two were identified as providing the best opportunity for the sellers. With both being extremely interested in acquiring the seller, a bidding process was orchestrated and after much discussion, a preferred buyer was selected based on the indicative value of their offer and of course their ability to pay. The seller granted the preferred buyer a period of exclusivity to investigate the business in more detail.

Unlike many other small operators in this sector the business was tightly run with excellent financial controls and back office administration, this enabled the chosen potential buyer to move quickly to a formal offer as due diligence was relatively simply.

The next step was to review the sellers tax position and agree a deal structure that met the seller’s expectations without impeding on the basic cost of the sale as agreed by the buyer.

Detailed Heads of Terms were then put in place clearly setting out and formalising the numerous points discussed, including trigger mechanisms and pressure points in terms of the stability of the seller’s business, its ongoing performance during the sale process, and expectations of the outcome of completion accounts. Heads of Terms are extremely important in putting into perspective what has been negotiated and also later in the process as they provide a clear-cut framework for the lawyers to work to in producing a Share Purchase Agreement. Correctly drawn up these Heads of Terms can cut legal costs as any ambiguity as to what the agreed deal consists of is removed.

The final negotiation was, as is often the case, agreeing the warranties provided by the sellers for the ongoing protection of the buyer. The framework structure of the deal was clearly set out in the Heads of Terms, this part of the negotiation took longest, as this is the area in which the seller and buyer have the least goal congruence.  Once these were agreed the deal successfully concluded.

The seller subsequently learnt that they had achieved a sale price commensurate with selling right at the top of their market sector.