I met a gentleman at our Digital Doers dinner on Tuesday night who is a serial entrepreneur with a couple of very successful software businesses under his belt. I asked him about his latest business (all of two months old). What was his biggest challenge? ‘Planning for an exit.’
Now this might feel a bit like putting your baby’s name down for Eton at birth, but of course he has a point: your chances of achieving a successful exit (sale or IPO) are hugely improved if you have a few years to prepare. Ahead of our CEO Tales on April 17th, we asked FirstCapital for their top five recommended steps for companies preparing for sale:
‘1. We meet a lot of people who think “if you build it they will come”. Sometimes that’s true, but mostly it’s not, so it’s better to be proactive if you want something to happen. Well before you expect to sell, maybe even a couple of years ahead, start making some noise with your expected buyers. Talk to the business units, develop partnerships if appropriate, beat them to important customer contracts if you can. Be visible. Make sure they know who you are.
2. Always be thinking about how you can be the market leader in a growth sector. Even if it is a niche, market leaders are more valuable and more attractive. People pay higher prices for market leaders. The old “we are 1% of a billion dollar market” is not generally very interesting.
3. Do some housekeeping. Get rid of that subsidiary which has a difficult ex-employee as a minority (but blocking) shareholder. Make sure all your customer contracts are signed and that your IP is properly protected. Develop the KPIs you need and track them effectively. Focus on operational efficiency and profitability. Above all, make it easy for your buyer to get through due diligence without giving him/her an excuse to chip an agreed price.
4. Start to get to know the advisers in your sector. They will have their fingers on the pulse of the market, and can help you understand market activity and timing. They may well offer some free advice, as well as keeping their eyes open for potential relevant acquirers.
5. And finally, be ready. In most acquisitions, the target is already known to the buyer. If you do get an inbound enquiry, even if you had not planned to launch a sale process yet, you will need to respond quickly if it looks interesting. And even if you are minded to accept, in order to keep your buyer honest and keep the pressure on, you should introduce some competition into the process. That’s usually the best way to maximise the deal.’
Hazel Moore, Chairman, FirstCapital
Of course, every sale is different so we are looking forward to seeing how our speakers at CEO Tales approached the selling challenge with their four very different businesses.
If you have questions you would like to put to them, do let us know by email or on twitter, using the hashtag #CEOTales.
We’d like to thank FirstCapital and our other supporters for the event, Erevena Executive Search, Rackspace and UBS