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Exit planning: The key steps

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If you want to maximise the return on the sale of a business, exit planning is critical. Having sold 400 businesses over the last 20 years, we believe it adds 30 per cent minimum to the final price.

The starting point is exit strategy: what do the shareholders (or single shareholder) want to achieve? And how will the appropriate exit option help them? 

Are they/you looking to:

  • Cash out completely through a trade sale;
  • De-risk their investment but happy to expand the business with a private equity partner;
  • Take some cash but without losing control through refinancing (banks allowing); and
  • access capital and subsequent sell down through an IPO.

Once this is clear, exit planning can begin. Trade buyers (aka strategic purchasers) may be willing to pay a premium; so who are they? Identify them. Then work out how to make the business as attractive as possible to them.

One UK coffee company, for example, developed its coffee outlets to match the same look-and-feel as a potential strategic buyer, and tailored its expansion plans to open in areas where there were no overlaps with the potential purchaser, which was developing its own roll-out strategy.

It can make sense to have a commercial relationship/partnership with a strategic buyer, so you can both get a better understanding of each other’s business. It’s important to monitor such purchasers so that if they make some strategic moves there is an opportunity to approach them earlier than the expected exit date. With trade buyers, it’s all about their timing, not yours.

If your buyer is a private equity firm (with the selling owner likely to exit), then a management team needs to have been put in place a minimum of 12 months beforehand. You can’t fake this; experienced private equity investors will spot it.

Management and shareholders need to be aligned on the exit objectives and the future business plan. The growth strategy in the business plan needs to be based on concrete evidence that the strategy has worked so far – for example, continuing the roll-out of the  clinics, outlets or shops recently and successfully opened.

Private equity investors will focus on these variables:

  • Defendable market position;
  • Scaleable business;
  • Identifiable growth opportunities; and
  • Sustainability of earnings.

It’s vital to plan for your preferred route, but it’s also important to stay flexible, in order to get the best price. Running parallel trade and private equity processes and different deal structures can all add to the sale value.

One company we sold recently, Seafood Holdings, we prepared for a trade sale and a BIMBO (buy-in management buy-out) but eventually the company was sold to Bidvest, a South African diversified group, which was prepared to pay a premium for a good strategic fit. Lesson learned: a range of options improves competitive tension and hence price.

Caroline Belcher is a partner at Cavendish Corporate Finance, which specialises purely in advising owners on how to get the best price when selling their businesses and then successfully leading on the deals.

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