3 When marketing a sale to potential strategic partners, it is important to gauge market interest by approaching as many potential investors as is feasible to assess their understanding of the business and their ability to participate in the process within the proposed timetable. In cases where the market is difficult and the business is unique or complex and lacking a commercial track record, as in the case of QinetiQ, the public sector should educate potential investors about the opportunity. This would include providing written information on the business and the transaction timetable to a wide range of potential investors.
4 If marketing activity demonstrates that there is limited interest in the opportunity, the public sector should reconsider the timing and structure of the proposed deal. In the public sector the impetus is often to press ahead in difficult circumstances rather than to attempt to maximise proceeds. It is not unusual for private sector deals to be postponed if the market is less favourable than anticipated.
5 It is undesirable to negotiate a significant contract with the company to be privatised in parallel with the privatisation, as was the case with the Long Term Partnering Agreement (LTPA), and the public sector should avoid this. If, nevertheless, the public sector finds itself in this position it will have additional risks to manage.
a Bidders need certainty over the terms of key contracts in order to value the business. If there is any uncertainty it is likely this will lead to a lower price or discourage bidders from submitting binding, unconditional offers. The public sector should not appoint a preferred bidder until the terms and price of the contract have been substantially agreed.
b To achieve the maximum value the public sector needs to have a full understanding of the value of the business and of the interactions in value for money. There is a trade-off between the value received from a contract as a customer and the level of proceeds achieved from the sale. In the case of QinetiQ the Department relied on a financial model developed for customers and had not substantively valued the contract (see Appendix 5). It was therefore not in a position to understand the true value of the contract to QinetiQ and whether the fall in proceeds was balanced by a benefit to the Department as a customer. Departments should achieve this by ensuring there are robust independent valuations of all the key aspects of the business and that these are updated where contractual terms change.