To support the launch of the new PlastikCity Business Marketplace, we interviewed Pravin S Mistry, CEO of Prea Ltd, to give our users an overview and some tips on buying and selling a plastics business.
Prea is a UK based manufacturing consultancy whose activities include the global buying and selling of companies. The plastics, composites and rubber sectors are included in their specialist areas of business.
Carl: In the polymer industry, what are the most popular companies that are being bought and sold at this time?
Pravin: Thermoplastic compounders, injection moulders and extruders are the most popular, followed by thermosets, i.e. rubber moulders and composites.
As a specialist in this area, what is your view on the attraction of acquisitions?
There is enormous potential. It is more attractive to acquire than set up an operation from ground zero, where you would have to obtain land, buildings, machinery, and recruit or train staff.
How sensitive can the market be?
It’s important not to tell anyone that you are looking to sell or buy a company. It may seem obvious, but I have seen many fail to recognise this.
If you’re looking to sell, your customers will panic and may take their business elsewhere. You may also find that your employees start looking for alternative employment. If you promote the fact that you’re looking to buy, the sellers may take advantage and inflate their prices.
How do we keep matters confidential?
Confidentiality agreements should be in place before you speak to anyone, including an advisor.
Merger or Acquisition: What’s most suitable for a business looking to expand?
It all depends. If you need a partner to provide funds, reduce risk, access technology or enter new markets, for example, a merger can make sense.
Acquisitions are mainly for companies that have experience in going through these processes and are looking to build their brand globally and rapidly.
We find that in the majority of the time, owner-managed companies struggle with joint ventures. This often comes down to conflicts over company strategy, following orders or personality clashes. In some cases, all three!
As a specialist in this area, what do you believe are the factors most likely to make a merger or acquisition successful?
It is a bit like a family. People have to get on. You need total transparency, personalities are a key issue, and you have to be an ambassador on both sides.
You need to be honest about whether a merger or acquisition is right for you. Do we have the financial backing, and do we have the resources?
You may require additional resources like an advisor to start selling the company. It helps if you use someone who understands the industry, technically and financially.
You must ensure that while the process is going on that you keep track of your existing business. It is quite easy getting distracted from the day to day, and this can be detrimental to your business regardless if you are a buyer or seller. Be patient. It is not an overnight process.
How do we determine what is for sale and what you are buying?
You need to be clear about what you are selling or buying. The company, name, buying, order book, assets, machinery, IP, land buildings etc.
Note, the majority of the time, the business is sold in one transaction and the land/buildings sold under another transaction, if not leased. Sometimes buyers are not interested in the buildings, land and rent. The easiest way to answer this is to stipulate what is not for sale.
Can we sell to anyone?
Caution, this depends on what you are manufacturing and how sensitive it is to the market. You may need clearance from certain parties, although most of the time, this will not apply.
We are selling the business, and I am the 100% owner. Can I just walk away the day after a sale?
There will be a transition period when you sell your company. Be prepared to stay on board or remain as a consultant for anything from 6 months to two years. Earnouts will often feature in the negotiations.
If it’s a private or a family-owned company, your management team may change. Your family members may not be compatible with the new owners. The new buyers may want to bring in their own team.
Is there a cost to selling or buying a company?
Yes, there will be a cost which will vary depending on the way you choose to manage the process. You may want to use an advisor or consultant, which will result in fees. You or your agent will want to promote your company to the industry. Anonymous advertising on specialist industry platforms such as the PlastikCity Business Marketplace will generate more interest, often leading to higher purchase prices. In all cases, there will be legal costs for the contracts. An advisor would be able to go through this with you.
Once we sell are there taxes to pay?
Yes, there are taxes to pay. It depends if you are selling an owner-managed company or part of a multinational group. Owner-managed companies receive entrepreneurial relief, but the amount varies upon the government policy at the time. Again your advisor can assist.
What kind of preparation/documentation do we need to have in place?
As a seller of the company, you need to prepare the business for sale. You should perform internal due diligence to see what gaps there are and address them before the sale. Preparation and organisation are essential. Your advisor can assist you with this.
How do I find potential buyers or find out which companies are for sale?
You can look on specialist industry boards such as the PlastikCity Business Marketplace. Independent industry-based advisors will know companies that are be looking to sell or buy and can help you approach these companies without initially giving your details.
How important is the company culture when undergoing the process?
Company culture is a crucial consideration. For example, when a large multinational takes over a family-run business or even other multinational businesses, there will be an adjusting honeymoon period. These are always challenging times with new systems to learn, overlapping roles, redundancies and structural changes taking place.
If you are a company that is a standalone purchase and things are left as you are, then this will be a much easier process. Often when this happens, a part-time Chairperson is appointed, sometimes neutral, to ensure that the company stays on track. Sometimes when we are involved, we are asked to undertake these roles.
How do companies determine what valuations they should be buying or selling for?
Some buyers go in, look around and spend more time on financials, i.e. turnover, profit, sales, spreadsheet, EBITDA. Some buyers look long term, and some are more interested in buying, turning the company around aggressively and selling on. As we call ‘flipping’.
Valuations will vary depending on the market and the buyer. The buyer may even be prepared to pay a premium as it may help them access new markets, countries or new technologies.
When looking to buy or sell companies for a client, we look at everything from financials to operational, as well as looking at the future potential.
We will always see a spectrum of valuations. These will vary from reasonable to under and grossly over. Using an industry-related advisor helps to gain a better understanding.
Regardless of market conditions, it’s important to tell you there is always a buoyant market for buying and selling companies.
Can you give us a few examples of what companies need to start the process?
To mention a few points:
- All the accounts need to be accessible and up to date showing financial turnover, assets, outstanding debts, legal issues etc.
- Do not hide anything; be open and honest. You will be caught out at due diligence, and this will be embarrassing and weaken your position.
- Be clear on company strategy, your vision
- Know why are you buying/selling
- Know clearly why the company is for sale
- Understand if the next tier management team is in place
- Always use an Organisation chart which shows people that are assigned to these roles currently.
- Prepare all relevant documentation, i.e. confidentiality agreements, teasers, information memorandum etc.
- Be clear what type of buyers/sellers are you looking for, horizontal or vertical integration, which countries/continents
- Establish who will complete the due diligence on the buying/selling
- Know who will be appointed to assist you and take you through this process
Due diligence, now there’s a challenge! Time and again, buyers and sellers will have conflicts. For example, claiming that assets were of a certain value, output/production levels not as expected etc. This happens because due diligence was not carried out correctly. Due diligence must include anything and everything associated with the business. These include manufacturing details, people, customers, land contamination, asbestos in the building, outstanding legal court cases, debt, loans etc.
Thanks to Pravin S Mistry, Global CEO at Prea Ltd, for this interview.
Prea Ltd is a global polymer manufacturing consultancy with a particular emphasis in the plastics, rubber, composites, chemicals and engineering-related businesses. We are quite unique in that we are from the polymer industry and have worked for small and multinational companies both nationally and globally and still do.
As an introductory offer, PlastikCity has applied a limited 40% discount for all listings up until the end of July 2020, meaning you could sell your business for only £179.
Visit PlastikCity’s Plastics Business Marketplace now to list your company or view the companies currently for sale.