The Daily Telegraph included a report on Exit Strategy, addressing the issues that business owners need to consider in order to extract maximum value from a potential exit.
Topics within the report include the importance of timing, having clear and well defined objectives, effective presentation of the opportunity and clear thinking on the impact of intangibles, such as succession and the value of intellectual property. It also included a short case study on the recent sale of Autodata:
Preparing for an exit process increases the chances of success and the level of valuations. Addressing these six areas will maximise both:
Management. The less well developed your team, the more likely you will have to stay on post-sale. Start thinking about this two years before launching a process – a good team takes time to assemble, gel and build a trackrecord.
IP ownership. Demonstrating you own your intellectual property is essential to receiving value for it. The uncertainty of an IP dispute can make a sale almost impossible, while an inability to prove ownership will probably leave you on the hook for future problems. Start reviewing your IP 18 months before you launch a process.
Profile. There’s no point you being ready for exit if your acquirers aren’t – give them the chance to prepare, too. Targeted PR will put you ‘on the radar.’ Allow 18 months – make the most of annual trade shows – and intensify it in the final six months. Perhaps even let select, non-threatening, know you’re “thinking about longer-term strategic options ahead of a formal exit process.”
Working Capital. ‘Excess’ working capital over the ‘normal’ level is additional cash value for you. What’s ‘normal’? Most acquirers/investors start with a 12 month average. Explore opportunities for debtors to pay sooner and manage creditors – lowering the average working capital target and unlocking real value. Make sure you have detailed monthly management accounts to demonstrate it.
Contracts. Lock in key customer/supplier contracts, and extend their durations. Negotiate out any ‘change of control’ provisions which give a customer/supplier the right to terminate the contract on a sale. Extend the notice periods of key people. Reducing an acquirer’s risk in this way makes it more likely they will pay full value.
Appoint Advisers. A good corporate finance adviser will help with these issues including when is the best time to sell, plus many more once the sale is underway, and will tell you what acquirers are looking for or are worried about. Appoint them early to develop a proper relationship – it will pay off later.
Case Study – Autodata Publishing Group
Founded in 1975, Autodata is Europe’s leading provider of technical automotive information. Mechanics in over 80,000 professional workshops rely on its data to help them carry out service, repair and diagnostic work on 17,000 vehicle models from 80 manufacturers, including cars, light commercial vehicles and motorcycles.
Having brought in a new CEO, Rod Williams, and CFO, Debra Barr, to complete the management team, founders Richard Atherton and Dietmar Otto then appointed Livingstone to help them prepare for an eventual sale over a twelve month period.
This preparation phase also allowed time to clarify the shareholders’ objectives – as Richard Atherton explains, he was looking for both “a really pleasing financial result for the shareholders and a sound home for the company.”
All this preparation paid off, as Autodata was sold in May to mid-market private equity house Bowmark Capital and the private equity fund of the Rothschild Group, Five Arrows Principal Investments, for a reported enterprise value of £143 million.
Richard Fetterman, Partner at Livingstone, explains: “Autodata is a world class business and this was reflected in the huge amount of interest that we received from both strategic and financial acquirers. Careful preparation and a well-managed process were key to delivering the right result for the shareholders and the business.”