Selling your business

When selling a company, or part of it, we have sophisticated facilities at our administration office to identify prospective buyers that meet the client’s criteria. Concurrently with the search, we value the business, using accepted financial market methodologies and we develop a price negotiation strategy.

We produce an information memorandum of high technical and presentational standards – a marketing document, and document of record, containing a comprehensive description of the business, and incorporating financial history and forecasts. We evaluate offers from buyers, and negotiate until a satisfactory offer is made. We remain active in the client’s interests throughout due diligence by the buyer, and at the legal documentation stage, until the transaction is closed.

When retained to find acquisitions for a client, our research resources are used to identify targets for purchase by the client. We evaluate target companies, in whatever depth the client requires, and help with negotiations as necessary.

The foregoing is a generalised description of a process that can have many variations, according to the seller or buyer’s needs.

Another sell transaction variant is the private equity deal. Currently, private equity deals involving very large South African corporations, which de-list from the JSE and become part-owned by private equity houses (investment groups specialising in taking stakes in successful businesses offering above average growth prospects), have become headline news.

Another form of a basic sell transaction is the BEE deal, described in the next section.

At the level of the unlisted, owner-managed, mid cap, local private equity houses, many of them specialised units within the major commercial banks, are also looking for opportunities to buy into businesses that can grow fast.

For owners of unlisted companies, the private equity deal can be an opportunity to unlock some of the value in the business without surrendering control – a typical private equity stake would be 40% of the equity. Moreover, because the private equity investor will be aiming to help the owners double the value of the business in five years, whereupon the private equity investors will sell his stake – either to the owners, or to another private investor, or via an AltX or JSE main board listing – a deal of this kind can be an attractive way for owner-managers to plan ahead for retirement over a five-year period, during which the business gets professional help to increase its value.

Private equity deals usually rely on considerable amounts of debt in the capital structure in order to gear up the return on equity and need careful evaluation because of the risk that the debt financing creates. At GKA Capital, we are familiar with this kind of financing and with its merits as well as its potential downside, and can advise clients accordingly.

Exits from businesses

An owners exit from a business is an immense event. Having developed and matured the business, great care is required in maximising its value on sale or other exit. Specialist corporate finance advice is critical in order to have the best possible outcome.

It may be that all the owners of the business wish to sell immediately, in which case GKA Capital would normally find a suitable trade or financial buyer for the entire business and execute a sale of 100% of it.

In other circumstances, the owners of a business may have divergent interests: some may be keen to sell while others want to remain in ownership. In such a case, GKA Capital may recommend an initial public offering ('IPO') of the company's shares on a public market. Alternatively, it may arrange for one shareholder to buy out another – or for a third party to replace the selling shareholder.

In some circumstances, it may suit the owners of a business to sell over a period of time. For example, a financial owner may seek to improve its annualised rate of return by arranging for the investee business to borrow funds to buy back part of its stake. Likewise, an owner manager may regard having too high a proportion of wealth tied up in one company as too risky and may arrange to make a partial exit by bringing in an equity partner to buy a stake in the business. In either case, as well as taking cash out, the owner leaves some equity in the business to share in the future upside.

In preparing for exit, GKA Capital will help its client assess which of the various routes is likely to provide the most favourable result and, as appropriate, recommend that a variety of options are kept open. For example, it is quite common to run a 'twin track process' between i) a potential sale to a trade or financial buyer and ii) an initial public offering ('IPO').

In order to maximise price, access to the widest possible range of buyers is vital. This requires:

  • Strong sector knowledge: GKA Capital divides itself into specialist industry teams, each with in-depth knowledge of particular sectors. It therefore has the specialist knowledge required to access buyers in almost all industry sectors.
  • International reach: GKA Capital is a member of Acquisition Consulting Services, an international mergers and acquisitions network with offices from China to India, Africa and all major European countries to the Americas. It can therefore access buyers from across the globe.
 

 

THE GKA CAPITAL BBBEE ROUTE

The directors of GKA Capital fully support the South African government’s BBBEE policy. There has never been any doubt in the minds of any of us that we see ourselves as fully participating members of South Africa’s heterogeneous population, and we enthusiastically embrace the great challenges it offers to make a contribution towards the success of our rainbow nation.

As corporate finance specialists, we have formulated many BEE deals. However, this does not mean that we ourselves are not subject to the same BBBEE imperatives as our clients. We are participants in our economy, not just observers of it.

Arising out of our concern that BBBEE does not always reach beneficiaries outside of an already empowered elite, we have decided to empower our company by offering participation to our own staff members in the first instance. At a later stage, we will offer opportunities for outside parties or BBBEE organisations to join us.