Five ways to maximise your chances of leaving as soon as possible after a deal completes
In many cases, an acquirer will be worried if a founder or owner wants to leave straight away – think of all that knowledge and experience walking out the door. More cynical purchasers might wonder if you’re trying to sell because the business has peaked or gone ex-growth. This is particularly true in the media:tech space, where people are so important to building and capturing value and where businesses can grow – and shrink – very quickly indeed.
All things being equal, a founder looking to leave immediately will normally result in a lower headline valuation. It also makes it harder to use earnouts or similar structures to bridge the valuation gap, because the people benefiting from any earnout – the selling shareholders – probably won’t be around to make it happen.
So if you want to exit on completion, how do you maximise both your chances of a clean getaway and the valuations on the table?
1. The Next Generation: It will be essential for a purchaser to see that you are not key to the running of the business. Ideally, build your next generation of management and encourage them to begin taking responsibility well before you start a sale process. Reduce your day-to-day involvement as much as you can, perhaps stepping back to become a non-exec.
But remember: it’s not enough just to be out of the office. Purchasers will see if essential decisions are only being made with your say-so or when you’re in the building, and will want to ensure that staff genuinely look to your next generation rather than to you.
If you don’t have the time to build the next generation and progressively step back, at least make sure your team is able – and willing – to step up and take over from you when the deal is done.
2. Client Relationships: Reducing your involvement means handing over those client relationships, too. The more important the client to the company, the more likely you are to want to hang on to it, but the more important it will be to hand it over before a sale. Purchasers will not want to take the risk that your departure will jeopardise a key relationship, and are likely to mark down valuations or make some element of the deal contingent on retention of clients if you remain the principal point of contact.
3. Growth and Strategy: Although you were the visionary behind the company and its growth to date (at least, that’s what the Information Memorandum says!), if you aren’t there to deliver the next phase then the strategy should be your team’s rather than yours. By all means work with them to shape it, but let it be theirs. An acquirer won’t pay for your big picture of future success if your successors have no idea how to implement it.
4. Clean Out the Skeletons in the Closet: If you have contingent liabilities or legacy issues in the business, especially relating to IP ownership, tax, or pensions, sort them out before starting a sale process. If you don’t, you might be forced to live with a retention – a proportion of your value held in an escrow account until the issue is resolved. And if you have value riding on fixing a problem, you’re probably going to want to stay in control, at least of that issue, making it harder for you to step away from the business.
If there are issues of this sort and you can’t resolve them before starting a sale process, be open about them with potential acquirer. No one likes a surprise and if an acquirer finds our you’re trying to hide something, it will have a disproportionate effect on confidence and probably value as well. This is often the gateway to a more general retention – an additional tranche of proceeds held in escrow ‘just in case’ something else comes up once the deal is done, which might not affect your ability to leave but is certainly something to be avoided if possible.
5. Make your intentions clear: Finally, if you want to leave as soon as the deal is done, make sure you’re open and up-front with acquirers about this. Again, no one likes surprises, and an acquirer has always assumed you’ll be there to run the business for them, and you suddenly announce you won’t be, you will probably spook them into reducing their value, changing the deal structure, or re-considering whether they even want to do the deal at all.
Overall, preparation and openness are the keys to making a clean break, and the earlier you start, the better.