Nov 2012

Preparing for an Exit

Hazel Moore, Chairman of First Capital, highlights 5 key points to consider when preparing for an exit:

If you’re selling your business, you want to get the best deal you can. The good news is that there is a lot that you can do to improve your chances of a successful transaction, if you start early enough and focus on making the right decisions, often several years ahead of time. Here are five things to think about:

  1. If you want out, do yourself out of a job

It may sound obvious, but the first thing a founder or CEO should do is to figure out his/her own objectives. If you want to be able to step back from the business straight after the deal, succession planning should be in place at least a year in advance. This might mean a founder moving to a non executive chairman position, bringing in a new CEO and, crucially, making sure that the new CEO is demonstrably running the business. Other things to consider include making sure that any critical relationships the founder holds with customers or partners are transferred to other senior management who are staying with the business.

  1. Focus on how you position the business

Keep a close eye on what is happening in the markets you operate in, how they are changing and how you fit within the key growth themes. Technology acquirers are generally looking for growth, and you will be worth a significant premium if you are aligned with the highest growth areas. You need to be able not only to articulate your own vision clearly, but also to back that up with evidence, eg great customer case studies for a new “hot” product you have introduced. Bear in mind that if your key buyers are themselves highly valued, they are more likely to be willing or able to pay a higher price for you.

  1. Develop key partnerships and strategic relationships

A significant number of acquisitions come from existing strategic partners and relationships. The more a buyer understands your true value to them, the easier it is to get buy-in from the multiple levels of approvals they are likely to need to sign off the acquisition, which can shorten the acquisition process by several months. Therefore I’d recommend having a clear strategy for engagement with your key buyers over a couple of years, this might be relatively low level such as seeking them out at industry conferences for a fireside chat, or closer engagement through OEM or other commercial relationships.

  1. Get your house in order

The last thing you want, having agreed an attractive deal, is for things to start going wrong in due diligence. You want to close as quickly as possible on the agreed price and terms. Therefore get your house in order in advance. Spending time preparing for a sale before you press the button will be time well spent. Can you withstand intensive scrutiny from an army of lawyers looking at every contract you’ve ever signed? Any issue surfaced during due diligence introduces doubt, delay and uncertainty in the mind of the buyer, and has the potential to become a problem. 

  1. When to sell?

This is the million dollar question. It’s worth keeping in touch with one or two trusted advisers with experience and connections in your sector. They will have a good sense of the market activity and appetite, and can provide helpful context. It’s always difficult to know when the ideal time to sell is, but in general the key point is that you should not leave it too late. If the market is active and the buyers are circling, you don’t want to be the last one standing. Better to sell and leave something on the table for the buyer, than not to sell at all.

In 1999, Hazel Moore co-founded First Capital, a European investment bank specialising in helping technology businesses to successfully execute strategic transactions.

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