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Exit – A Question of Timing?

September 21st, 2015

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timeBy Andrew B Morris

I’m a great believer in Getty’s approach: if the price is reasonable, accept it. Don’t be too greedy. Sell and move on. Don’t obsess about market conditions or the wider economic cycle or wait until the grass is greener. That might never happen. Choose the time that is right for you.

To get to this point takes preparation. Ideally, you should plan an exit a couple of years out: due diligence alone can take up to a year, and the more time you allow, the more smoothly the process will go. Several key factors will influence your timing:


Why sell?

The story behind your exit is important: it should be compelling and positive. Be clear about why you’re selling. For owner-managers, it may simply come down to state of mind: are you running out of steam? Or is it a question of adding new skills or funding further developments? Perhaps you have developed a new product that you cannot afford to take to market. Whatever your reason, present it as positively as possible.

It is usual to look at selling a business after it has gone through a strong period of growth and has a positive future. But have you thought about alternatives to selling? A joint-venture, outside investment or even a revamped leadership team?

Can you demonstrate growth?

This is the key to a successful exit. Think about when a potential sale will occur in your trading cycle. You should be able to show a track record of at least three years’ growth with similar prospects for the coming few years. Consider your market: is it stable? How does it behave in a recession? Check out recent deal multiples in your sector and get a clear idea of the potential value of your business.

Don’t forget about hidden value, which often resides in your brand. Your company may also have latent growth potential: can you point to international interest as an opportunity for expansion? Be completely transparent in any disclosures and trading forecasts, even if they mean a reduction in the offer. Remember, failure to disclose something material to the valuation of the business can come back to haunt you, even after a deal has gone through.

Maintain momentum

Set a realistic, but fast-moving timetable to maintain momentum and minimise disruption. But be ready to abandon a sale if you suddenly lose a key customer or growth prospect. With that in mind, it’s worth considering fall-back plans: bank debt; a joint venture; private equity or angel backing.

Do you have a dream team?

People are mission-critical to exits. Owner-directors may be walking away from the business, so they need to have a strong succession plan and a solid management team in place for the new owner. Often, the buyer will look to those who are staying as a demonstration of commitment. Bear in mind, too, that buyers may want the management team to roll over any stake they may have in the business. The feeling among new owners is that already-enriched executives can be harder to manage and motivate.

Who’s minding the shop?

Selling a business can be a rollercoaster ride. It is a long, emotional and disruptive process and it’s all too easy to get distracted and take your eye off the business. So create a ‘deal team’. This will usually include the financial director and the CEO, who then pretty much hand over the day-to-day operations to other senior executives. This ensures that if the worst happens and the deal falls through, the rest of the business doesn’t suffer. But if the deal does go smoothly, have a communications plan ready to inform staff and key customers: don’t keep them in the dark.

Who’s advising you?

Select lawyers, accountants and M&A advisers in advance and agree fixed win/lose fees. Your M&A adviser will effectively become part of your team, so the fit needs to be right. Hold a beauty parade and ask questions about how they work, their personal approach to a sale, the individual with whom you’ll be working, and whether they have any experience of your sector.

Who’s your buyer?

If you’re looking for a trade buyer, post-sale integration and meshing of corporate values is critical. This is too often overlooked by buyers pre-purchase, yet it’s a common cause of grief. ‘Culture’ and goodwill can be fuzzy concepts, but it’s worth trying to articulate them through examples of workplace practice: how you reward people, whether you encourage mobile working or have a commitment to an ethical supply chain. Don’t shy away from this, especially if your brand is built around distinctive values. For the right buyer, it could seal the deal. You may have to pass on potential parties if there is a clash of values.

Andrew B MorrisAndrew Morris is Chief Executive of the Academy for Chief Executives, helping businesses to accelerate growth through better leadership.

Andrew describes himself as a creative businessman, who enjoys meeting people from all facets of life. His mantra is ‘take your job seriously, but not yourself.’

 

Image from Shutterstock.com

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