The experts give their advice

THE PROSPECTIVE purchaser is hoping Farrell will be busy comparing and contrasting the three purchase options rather that the real question – should he sell or not.

This is more than a lifestyle business for Farrell: it’s his passion. Since he hired his general manager he has been able to focus on developing the business. He no doubt gets huge personal satisfaction from being a “trusted adviser” to his clients, and from seeing his parents contributing to the growth of his business. He needs to recognise this.

He has consistently taken the long-term view in analysing the market and developing new products that meet its needs. Contrast this to the Dutch buyer’s desire to have the business run by one of his managers and immediately rationalised. What if the Dutch disagree with Farrell’s next phase of expansion and what about the probability that his parents will have no role in the business? This will be immensely difficult for Farrell and he may leave or be exited from the business.

One significant negative Vincent must face if he rejects the sale offer is the lack of a big pay day. It’s human nature to think about spending the proceeds of the sale. He wants to repay his parents’ loans. No doubt his mind has wandered to a nice car, a significant holiday and so on. “Thinking about it for a few weeks”, as recommended by Jansen, will make clear thinking more difficult. In fact, Farrell should decide quickly. I would recommend he rejects the offer and moves on.

The business has yet to benefit from its investment in the domestic plants and will no doubt also benefit from Farrell’s focus on income development since 2008. He has a track record in growing his business and, despite the current economic climate, it has the product set to continue this expansion.

If he rejects the offer he should focus on his new UK market segment, the domestic market. Given the large UK DIY market, he may have to change his sales approach to sell via UK garden centres.

Overall, there are opportunities in growing this business that far outweigh a quick pay day. Even in the current climate, Farrell is doing a job he gets immense satisfaction from and controls his own destiny.

– John Cusack

THIS CASE highlights an important issue typical of many small organisations in today’s economic climate. Farrell has combined passion with entrepreneurial skills to develop this business. These founding principles are coupled with organic growth and minimal accumulation of debt. Organic growth is positive but a reluctance to secure outside funding for growth can have a negative impact. Jansen’s offer has triggered a reaction by Farrell that, at least, is making him review his future direction. The key issue is not to have a ‘knee-jerk’ reaction to the offer. It is tempting in challenging economic times to consider an offer of sale as a very positive opportunity.

The suggestion would be to reject the offer. The current market is challenging but not impossible, and there are opportunities for growth – an issue possibly driving Jansen’s offer. Farrell has a number of potential products for different markets – low maintenance plants, shrubs and trees for business and domestic consumers in the UK and Europe. To date it would appear that his knowledge of the industry, combined with gut feeling, has allowed product development. However, Farrell needs a more strategic focus going forward.

One issue affecting growth is location and distribution. With Farrell based in Meath and targeting markets beyond the national geographical boundary through mail order and personal sales, it makes sense for him to move online – this eliminates the need for reliance on costly personal sales.

An online strategy offering full product listings and the possibility of ordering online allows his product and brand to be accessible to the UK, Irish and European market in a cost effective way – and the mail order background of this company confirms that remote selling is suitable. Farrell can use this platform to promote his business, emphasising the product range and online convenience, while still capitalising on his business’s unique selling points: his own knowledge and experience, and the small ‘personal’ nature of a company based in the ‘green’ isle. The online approach will allow Farrell to target both trade and domestic customers: although the Irish market appears to be very depressed, there still exists potential for development here as time moves forward.

This growth will incur costs. Although securing finance is challenging, it is not impossible and Farrell is in a strong position due to his organic growth. This, however, raises the issue of his father’s potential discouragement: investment is required to nurture the business. Farrell needs to define the role of his father within the business in the future.

Future growth needs to be based on a strategic plan focusing on expanding customer base and geographic reach and refining promotion and distribution. It is imperative that, unlike past decisions made on gut feeling, future decisions are based on research to capitalise on customers’ needs and wants.

– Laura Bradley

FARRELL MUST consider whether the offer presented to him represents the best opportunity and, arguably as important, whether the timing for a disposal is appropriate. In evaluating whether to sell his business he must consider two linked factors:

1. Whether the offer provides fair value and rewards him for his investment; and

2. Whether he wishes to remain in the business post-disposal.

Farrell is correct in worrying whether an upfront payment in the current climate would undervalue his business, particularly in light of a planned launch of the new domestic product range. He needs to carefully review forecasts and budgets, and assess whether the offer price and earnings multiple take into account realistic future opportunities and not just the business’s current position.

An earn out can provide some security to a seller, offering potential to reward future performance. It is particularly useful in cases where the underlying results on which an upfront payment is based are adversely affected by non-recurring charges or weak macroeconomic factors. Again, Farrell must consider whether the earn out period and structure is sufficient to take account of any economic recovery and new revenue opportunities.

For an owner-manager, the decision to sell is understandably affected by sentiment. Farrell must consider whether he wishes to remain in the business post-disposal and, if so, whether his remaining will represent an obstacle to its future development. Many owner-managers have difficulty being subject to direction from a larger organisation. Farrell must consider whether selling a 50 per cent stake in the business and relinquishing overall control will hinder its future.

If he decides to sell, it will be important to obtain professional advice to evaluate the offers, expose any non-complete clauses in the disposal agreement and avoid unforeseen tax consequences from the disposal. A further consideration is how the disposal affects other stakeholders including employees and investors, in this case Farrell’s family.

Ultimately, if Farrell believes the business can grow and prosper under him, and he can obtain the financial support to achieve that growth, then selling the business may not be appropriate.

If however, he believes he cannot drive that growth, or is unwilling to devote the effort needed to achieve this, a sale and exit from the business may be in his, and the business’s, best interest.

– Brian Bergin