The Challenge
The owners of a long-established wholesale art and framing business were preparing to exit after more than 40 years in the business.
Over that time, they had built an established position across the Australian retail, furniture, design, property and accommodation sectors. The business had an experienced workforce, an extensive product range, more than 2,000 customers, valuable supplier relationships, a customised SAP operating system and an exclusive relationship with a major international art publisher.
Much of the knowledge behind the business had developed with the owners over four decades.
They understood how to manage a client from the initial engagement through to design, manufacturing, framing and installation. They knew the supplier relationships, the customer expectations and how to bring projects to market efficiently. The owners also remained actively involved in the design process.
This created a key concern for prospective purchasers: how effectively could the business continue operating once the owners stepped away?
Initial offers were in the range of approximately $350,000 to $400,000. Preparing the business for sale required greater clarity around how the business operated, where its value sat and how its capabilities could transfer to a new owner.
AS Advisory was appointed as corporate adviser to prepare the business for sale, develop the Information Memorandum, market the opportunity and manage purchaser enquiries and due diligence.
What AS Advisory Did
AS Advisory worked with the owners over approximately three to six months to prepare the business before commencing the marketing and sale process.
A key priority was reducing the perceived risk associated with owner dependence.
The processes supporting the business were documented in greater detail, from initial client engagement through to the sale, production and installation of artwork. Manufacturing processes were documented, rights to catalogues and intellectual property were reviewed and secured, and the role of the broader design team was made clearer.
This helped demonstrate how the business could continue delivering its services after the owners exited.
Customer and supplier relationships were also reviewed. Supply agreements were introduced where possible to provide greater certainty around revenue. Once a purchaser had progressed sufficiently through the process, meetings were arranged with key customers to confirm their willingness to continue working with the business following the owners’ departure.
The financial information and balance sheet were reviewed, including the treatment of related-party transactions and other items requiring clarification. Historical earnings were analysed to provide prospective purchasers with a clearer view of the underlying financial performance.
AS Advisory also worked to identify value that was less visible in the financial statements. The business had developed considerable design expertise and an ability to deliver projects quickly, supported by its design team, manufacturing relationships, customer base, systems and intellectual property.
These elements were documented and incorporated into the sale materials so prospective purchasers could better understand how the business generated revenue and delivered its work.
The Outcome
The preparation and sale process took approximately 12 to 15 months from implementation through to completion.
As the process progressed, prospective purchasers were given greater visibility over the systems, people, relationships and capabilities supporting the business. This helped address concerns around continuity after the owners’ departure and provided a clearer basis for assessing the opportunity.
Owner dependence remained a consideration in the eventual transaction, reflecting the owners’ involvement in the business over more than 40 years. The preparation undertaken before and during the sale process helped reduce some of that perceived risk and supported purchaser confidence in the business’s ability to continue operating.
The business ultimately sold for approximately $600,000, compared with initial offers of approximately $350,000 to $400,000.
This process also gave the owners a clearer understanding of how prospective purchasers assessed the business and the factors influencing the price they were prepared to pay.
Why It Matters
Business value is influenced by the earnings a business generates and the level of risk a purchaser sees in maintaining those earnings.
In this case, owner dependence was one of the most significant considerations. Four decades of experience, customer relationships, design expertise and operating knowledge had contributed to the success of the business. Making more of that knowledge visible and transferable helped prospective purchasers understand how the business could continue after the owners exited.
Documented processes, established customer and supplier relationships, a capable team, intellectual property and greater certainty around future revenue all contributed to that picture.
For owners considering a future sale, starting the preparation process earlier provides time to identify where value currently sits, understand the risks a purchaser may see and strengthen the areas that could influence the eventual sale outcome.
Considering a future sale?
If you’re starting to think about an exit, an early conversation can help you understand how your business may be viewed by a prospective purchaser and what may need attention before going to market.