We at Carpenter Box are experienced in the financial aspects of buying and selling within the industry and we have endeavoured to give you some insight into how your business would be valued, but also some of the processes involved.
How will your business likely be valued?
The Buyer will initially assess the ‘Enterprise Value’, representing the value of the business’ activities.
This can be arrived at in a number of ways. Two of the most common are:
- Establish the maintainable earnings of the business and multiply this by the earnings multiple for the particular business/sector.
- Establish the market value of the individual assets being sold, including goodwill.
The Buyer will then adjust the ‘Enterprise Value’ to an ‘Equity Value’ for the particular circumstances of the business being sold. The most common adjustment is a reduction for debt in the business. Also, adjustments for unusual levels of working capital or excess cash are often made.
This would represent the value for 100% of the business. If only a minority stake in the business is being taken, then a significant discount is likely to be sought.
Listed companies might give you an idea of the value of your business
There are some vineyard and winery businesses that have a listing on one of the publicly quoted markets, a couple of these being Chapel Down (www.chapeldown.com) and Gusbourne (www.gusbourne.com). This is interesting information and should be assessed. However, most vineyard and winery businesses are private and operate on a much smaller scale. Consequently, this information is often not the most relevant to use, or requires discounts from any multiples implied.
How would the sale likely be structured?
Whether you are a company, a partnership, or a sole trader this may impact how the sale is structured.
For example: The Buyer will frequently want to structure the purchase as a purchase of the assets in the business, rather than the shares of the company. This normally reduces the risk and increases the tax reliefs available for the Buyer.
The Seller however will often want to sell the shares in the company as the tax treatment is normally more favourable.
Sometimes these respective positions are difficult to resolve and a compromise price adjustment between the Buyer and Seller is made.
Taxation is an important aspect of any deal but is not the main focus of this article. Please refer to our other articles for further details on the taxation aspects and do consult your own professional adviser.
What is due diligence and how would it affect the sale/purchase?
Heads of Terms set out the key terms of a deal agreed between the parties, made subject to due diligence. This is usually a non-binding agreement.
The due diligence process normally involves the seller providing a vast amount of information which is held securely in a data room. The Buyer then gets their professional advisers, such as a solicitor, accountant, and surveyor to undertake due diligence work and liaise with the Seller’s advisers, having previously signed confidentiality NDA’s (non-disclosure agreements).
This process carries a significant cost and generally takes anything between three to six months.
Thought should be given in advance to the preparation of a data room. As this process represents a major distraction from running the business for the seller’s team. Care is needed, especially if a sale falls through.
The bottom line
Your business is ultimately worth what a buyer is willing to pay you for it. This may or may not be what you, as the seller, think it is worth!
The outlook for the sector
The vineyard and winery sector is growing substantially, and this is expected to continue. There have been some significant transactions in the marketplace in the recent past. In our opinion, there will be more activity and consolidation in the months and years ahead.
Please consult your own professional adviser if you feel the information in this article is relevant to your circumstances and please do not hesitate to contact a member of our specialist vineyard and winery team here at Carpenter Box.