Selling a marketing consultancy: How example calculations protected the sale price

When the shareholders of a specialist marketing consultancy decided to sell to a company in a connected industry, the headline price was only part of the story. The deal involved a two-year earn-out, a surplus cash calculation and a sale agreement where the other side had lawyers but no experienced accountant.

Here’s how we made sure our client understood exactly what they were agreeing to, and how that clarity paid off when the buyer challenged the numbers.

The plan for the sale

The business had a majority shareholder and two minority shareholders. The plan was for the majority shareholder and one of the minority shareholders to retire, with the remaining shareholder moving across to work for the buyer.

The buyer was a contact of one of the shareholders. A specialist broker was also involved in the negotiations and advised on the M&A market at that point in time, which is specialist knowledge we would not have had.

A complicated price

The deal was subject to conditions regarding results for the first two years after the sale. The formula was fairly complicated, with conditions on turnover and profitability, and the potential to deliver any shortfall on the first year’s targets in the second year.

There was also considerable discussion around the surplus cash element of the sale price.

Filling the gap in the negotiations

We realised fairly early on that, whilst there was a firm of lawyers on the other side, there was clearly not an experienced accountant. There was, to a degree, a vacuum in how certain issues could be interpreted, so we provided the lawyer with numerous definitions of different items, particularly around normalised working capital.

We acted as a bridge between our client and the lawyers, helping our client understand what they were agreeing to.

Building the sale model

As with most sales we are involved in, we created a sale spreadsheet that calculated the likely sale price, including forecast completion accounts on which the deal would be based. The model also contained a number of worked examples of the conditions so that all parties could understand the impact.

We updated the model when the SPA was produced, cross-referencing it to the relevant clauses to avoid any ambiguity. The example calculation was then included as an appendix to the agreement.

The outcome

After the completion accounts were provided, the buyer attempted to dispute the interpretation of a number of items. Because of the clarity achieved through the example calculations in the SPA appendix, we were able to rebuff those attempts to recalculate.

Considering selling your business?

Selling your business is one of the biggest decisions you’ll make. Whether you’re considering a trade sale, a management buyout or exploring your options with potential buyers, getting the right advice early can make a significant difference to the outcome.

At A4G, we help business owners understand their options, structure transactions and plan for the financial and tax implications of a sale.

Thinking about selling your business? Speak to one of our Principal Advisers to discuss your options and how we could help you achieve the right outcome.