Maximising value on exit is a composite and refined process that begins in the early-growth stage of your business and continues through the development-capital phase up to the point you feel ready to "let go" of that which you have created.
Every material strategic decision taken by you and your Board has an implication for value on exit. The right preparation and strategic actions can have a positive impact on a company's sale value, while a lack of preparation and planning could result in the loss of value.
Here are some key areas we highlight to our clients:
Market sector and business strategy
Whether it is an exit you are striving for or fundraising (by way
of stepping stone to exit), the market sector you sell into and the
products or services you offer will have a material impact. If you
operate in a high-growth market, where your potential buyers are
highly valued themselves, you are more likely to be able to command
a higher valuation. A commanding leadership position in a
high-growth niche market tends to be worth more than a small share
of a larger generic market. This opens-up strategic value to
potential buyers by enabling a new market which may be important to
them and resulting in a bolt-on acquisition of your business.
Creating barriers to entry
Particularly for technology companies, the creation of high
barriers to entry will drive up value. In many cases, protection of
intellectual property is a key part of the value proposition and it
is important to have a well-thought-out intellectual property
strategy, which takes into account the geographies and market
sectors of your business.
Courting your buyer
If you can develop strategic relationships with companies that are
potential acquirers, you are effectively "courting" your
eventual buyer. By working closely with them, you can start to
impress them, or better still, make them dependent on you, which
can help drive up your value in their eyes. Most large companies
will maintain a "shopping list" of companies that they
are interested in, so it is worthwhile investing the time to get to
know them, and for them to get to know you, to make sure you are on
that list.
Fundraising strategy
How you decide to fund your business will affect not only how much
of it you own when you exit but also your ability to control the
outcome. Seeking external investment from angel investors, venture
capital, private equity or otherwise typically means entering into
a partnership which allows your investors a say in decision making,
and a dilution of your control to some extent. It is, therefore,
important to ensure (before signing up to any deal with external
investors) that your interests and long-term objectives are aligned
with them. This includes a meeting of minds when it comes to the
time frame and milestones for exit. In the venture capital and
private equity world the exit horizon tends to be 3 to 5 years from
initial investment.
Consistency of narrative
When negotiating deal terms with your potential buyer, discuss with
your advisers the type of deal you are looking for and then
consistently incorporate this in your narrative with the other side
from day one. For example, you may be looking for a coveted
"all cash" payout on signing, which will contrast with
the typical buyer preference for structuring the majority of your
returns as deferred payments that may even be pegged to the future
performance of the business.
Trusted advisers
In the same way that your Board consists of carefully chosen
individuals with specialist knowledge and the right cultural fit,
you will apply the same intellectual rigour when selecting your
deal team of professional advisers. These will be specialists you
instruct to maximise value and negotiate the term sheet and other
legal documentation on your exit – a transaction you will
most likely undertake once in your career.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.