Despite the disruption of Covid and Brexit, deal volumes remain high and M&A appetite amongst private equity and strategic trade acquirers is staying strong. This is great news for those considering selling their businesses and in this piece, we set out to answer the question – how do you drive maximum value from an exit?
Having a well-prepared exit plan ensures a smoother process and should maximise returns for shareholders. A proactive approach to planning the exit road map and quality vendor due diligence underpins the equity story, highlights value creation opportunities and can accelerate an M&A process, allowing shareholders to realise value sooner and potentially avoid any changes to CGT, which didn’t come in the last Budget, but seem inevitable in the short to medium term.
An exit readiness assessment should be performed well in advance of an expected exit – this should look at the company and its market, identify key activities and milestones to be addressed over the coming months, and highlight any weaknesses in the equity story. There are several drivers that have seen businesses brought to market earlier than anticipated including the availability of capital, higher transaction multiples and concerns over tax changes – with the results rewarding those who have ignored the external noise. The road map should be reviewed at regular intervals and address the following key questions:
Every situation is different – sometimes a stakeholder group has the breadth and experience to carry this out by themselves – at other times it can be worth asking advice from corporate financiers.
The exit roadmap should focus management on areas such as revenue and margin enhancement, working capital optimisation, etc. and enable management to clearly articulate and support significant challenge from buyers around:
Being prepared for an exit process limits disruption and strain on the management team (and the current shareholders) during a process, this ensures management do not lose focus on the day-to-day operations of the business, which could lead to value erosion.
Vendor due diligence should be considered – it can reduce the need for buy-side due diligence while also providing clarity on key areas of the equity story and potentially accelerating an exit process. A loss of value can often occur in the final stages of a process if there is a lack of clarity around the key value drivers.
Even in the current challenging times, we are seeing high levels of deal activity and it’s vital that businesses plan for a well-executed exit process. The concepts are simple, but the benefits are clear – vendors have more control and flexibility over the timing and speed of exit giving them the capacity to focus on deal critical issues and the best chance of maximising value.