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How private equity-backed finance directors should plan for an exit

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The planning for this exit event should really start as soon as the buy-out as been completed and certainly at least 18 months before the contemplated exit. At this stage, the actual exit route (whether trade sale, secondary buy-out or flotation) will more often than not be unclear, but there are many critical actions that need to be initiated regardless of the exit route. 

One of the most important to start early is the building of an electronic database of all material that will eventually be put into the data-room. This means pulling together all contracts, financial documents i.e. tax returns, management and statutory accounts etc., product descriptions, technology roadmaps, systems architectures, marketing material and much more. 

Never underestimate the challenge of this task as the number of documents collated can run into several thousand for even a medium-sized business. All contracts must be signed by both parties – it can be very frustrating for all concerned to be running around in the intensity of a sale process trying to locate original contracts because the version in the data-room has a missing signature!

Once the building of the data-room is underway, attention can then be turned to developing the financial model which supports the business plan. The financial model will typically go out for at least 3 years into the future and more often 5 years, and will capture all the key financial drivers. 

Whilst the corporate finance advisor will be involved in the development of the model, ultimately it needs to be owned by the CFO with the management team fully bought into it. This will inevitably consume a considerable amount of time by the CFO in checking and validating all the assumptions, so the sooner work on the model begins so much the better.

I won’t dwell too much on the critical decision of appointing the right advisor other than to say, firstly, the advisor needs to have the right level of experience of the industry and the likely interested parties, secondly, the chemistry between management team and the advisor’s team needs to be excellent, and thirdly, the advisor must be committed to the transaction – it could be a long haul and until there is a successful transaction, the advisor will not be paid!

Finally, it is vital that a transaction team is selected within the business. These are the people who will be aware of the process and working on it on a part-time or full-time basis. 

This team needs to be totally trustworthy to maintain confidentiality and also be prepared to give whatever it takes to get the deal done – including working in a 24×7 environment if necessary through the due diligence process!

If the exit process is carefully planned and executed in a timely manner, then the private-equity backer should be comfortable – and that is the most important relationship of all!

Paul Bosson has been CFO of private-equity backed technology businesses for the last 12 years, achieving 5 successful exits in that time. His most recent exit transaction was the trade sale of Masternaut earlier this year to FleetCor.

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