Lay the foundation stones
When?
Establish a realistic timeframe. You will need to give yourself time – usually two to three years – to ensure the business is ready.
Who?
Finding the right acquirer is important, so spend time thinking about your ideal buyer. Are you looking to sell to trade (a bigger company in the same sector), private equity or another investor?
How?
What type of exit are you looking for? Do you want to sell the whole or part of your business (in exchange for further funding, for example)? Would you like continued involvement after the sale or are you looking for complete separation?
Set a strategy
Once you are clear about the above, you need a plan. Set key objectives for the business to achieve in that timescale that will generate interest from potential acquirers. And remember to make these realistic and achievable – you do not want to set up for failure. Objectives may include, for example:
- Increasing market share;
- Improved turnover or EBIT;
- Developing long-term client relationships;
- Focusing on specific sectors or markets; or
- Development of technology.
You need to determine the best objectives that fit your business. You may, for example, wish to grab market share but at lesser EBIT, or focus on EBIT, not turnover.
Whatever you decide, you should measure the achievement of your objectives. This will demonstrate business value through achieving measurable goals and show reliable forecasting of future performance (including beyond the exit date).
Get your house in order
There are practical steps you can take to prepare for implementing an exit:
- Build key relationships with clients/customers and lock these in through well-documented and balanced contracts, where risk and benefit are clearly defined and allocated.
- Make sure you have strength and breadth in your client base. Repeat, high value customers are valuable, but reliance on a single or few clients may be seen as risky.
- Engage with and incentivise key employees: an acquirer will not want the risk of key people ‘jumping ship’. Ensure employment terms and conditions are up to date (including post-employment restrictions) and consider an LTIP, possibly equity based, or other incentives aligned to the strategic outcome and exit, so key employees buy-in to the exit process.
- Ensure good quality management information is produced regularly (monthly/ quarterly/ yearly) so you can provide consistent proof of financial history and performance. A disparate set of spreadsheets and other information that needs to be pieced together will not inspire confidence in a potential buyer.
- Make sure key processes are in place and documented so you can show the business is efficiently run and risk is well managed.
- Ensure you are up to date in compliance with applicable laws and regulations and that all required filings are made on time. Keep records showing this is safe and collate in one place as this will save much time when it comes to creating a data room for the exit process.
- Ensure key supply contracts are in place and not onerous. Leases, for example, should not be too lengthy and should contain a ‘right to break’ clause as a buyer may not want to be burdened with a property for several years.
- Safeguard any Intellectual Property Rights – they should be identified, valued and closely protected (through registration if appropriate). This is particularly important if your name, technology or patents are an essential part of your business.
Bring in the right people
When it comes to an exit, business founders often only think about engaging a lawyer for the transaction itself. This is often too late. Engaging an in-house lawyer, especially on a flexible or part time basis, from the outset can support you to prepare for exit, get your house in order, and free up the founder/CEO/CFO to focus on delivering the strategy and financial performance. It also avoids any issues arising late in the process, which can lead to a sale falling over, or a significant reduction in price, that is not reflective of all the hard work done building the business.
