The complex process of selling a business is often compounded by specific issues within an industry. As far as media and entertainment is concerned, the broad range of business types - from digital companies to print media and advertising - means that even appointing a suitable advisor takes a little more consideration.
Professional advisors with a targeted specialism and practical experience in your field will be best-placed to help you navigate the issues, ensure priority goals are met, and avoid making post-sale commitments that are difficult to maintain.
The first official notification to interested parties that your business is for sale is the Information Memorandum. This document includes general and financial information about the company.
Buyers will want to know:
“Why are you selling the business?” is often the first question asked by prospective buyers, and this needs to be clearly articulated. If you cannot state plainly the reasons for selling, it is likely to create suspicion amongst buyers and negatively affect the price.
The financial section provides details on how the business is run, the services/products you sell, why they are in demand, your customer base, and an outline of the company’s financial health.
You will need to provide business reports, asset valuations, details of your liabilities, turnover/profit and loss statements, as well as forecasts for future turnover and profits. So with this in mind, what issues might affect a potential buyer’s decision on whether to go ahead with the purchase?
Your business model determines the ease with which you can predict future turnover. Clearly, if you have subscriptions/memberships or service contracts, you can forecast this with greater accuracy, at the same time instilling confidence in a buyer that a solid financial base already exists. Businesses such as those dependent on regularly negotiating advertising deals may struggle to provide revenue forecasts with sufficient accuracy.
Media businesses by their very nature are labour intensive. The associated high staffing costs can seriously deplete profit levels, potentially discouraging buyers who are interested purely in future profits.
Creative industries are generally viewed by investors as a high risk option. For this reason it can be difficult to obtain finance in media and entertainment, although peer-to-peer (P2P) lending and crowdfunding are increasingly used as alternative sources.
Before issuing the Information Memorandum, it is a good idea to draw up a comprehensive confidentiality agreement to protect your business from competitors seeking business intelligence.
Once you have received an offer, you will need to see evidence of the buyer’s ability to pay - this is generally provided using bank statements or share certificates. The buyer may request that you remain in the business for a transitional period, so they can make use of your knowledge and experience, and assist with any immediate problems post-sale.
This could be on a consultancy basis, or using an ‘earn-out’ arrangement which is particularly useful if your buyer disagrees on the price, and you are agreeable to remain in the business for a certain length of time.
In this instance, a percentage of the purchase price is deferred, with payment being dependent on the business achieving certain financial goals during the specified time.
Once preliminary terms have been negotiated, a Heads of Term Agreement, also known as a Letter of Intent, can be drawn up. This may or may not be legally-binding, but sets out the terms agreed in principle, and signifies a move to the next stage of the selling process.
Protecting intellectual property is often a crucial consideration for media and entertainment businesses. As one of your most valuable assets, intellectual property including trademarks, patents and copyrights, should be registered and updated.
If a buyer discovers that IP is unprotected when carrying out their due diligence, they may disengage from the deal altogether, or alter their offer to reflect this. They also have the right to use warranties or indemnities to protect themselves from potential problems in the future.
For more information on selling your media and entertainment business, contact one of our professional advisors. Selling My Business has a team of business sales and finance experts with specialisms in the media and entertainment industry brought about by decades of experience – allowing us to provide the tailored advice you need.
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