"When considering an exit, the place to start is by defining an end goal. Identify a target deadline and work backwards from there. The earlier you begin, the better."
Steve Hickman, Partner, KPMG
You have an opportunity to exit your business and the outcome may be a life-changing event or give you significant investment capital for further growth. Either way it’s vital to get both the planning and the timing right if you are to optimise the value and wider benefits of the transaction.
“Selling a business you’ve poured blood, sweat and tears into is a very emotional and personal journey to go through,” says Steve Hickman, KPMG Partner and advisor to entrepreneurial and fast-growth businesses. “You have to get to a point where you have no regrets.
“The headline price is important, but many entrepreneurs are very protective towards their staff. Are my employees being looked after? Does the brand live on? These sorts of things come up when I speak to business owners getting ready to exit.”
When considering an exit, the place to start is by defining an end goal. Identify a target deadline and work backwards from there. The earlier you begin, the better. It stands to reason that exits planned carefully over two to three years are more likely to deliver higher value and fewer problems than deals that are rushed through.
Examples of getting it right and very wrong
A case in point is a private company currently being sold for circa £50m. The owner optimised value by bringing in a CEO with specific sector experience and in particular, of buying and selling businesses in the sector, and by taking care in picking a strong executive and advisory team. A share option plan – put in place early on to ensure HMRC approval – meant that 30% of the value of the business is cascading down to employees as an incentive. This, says Steve, is a well-planned route as the owner is able to exit the business in full with a management team who can take it forward, similarly, the employees have been rewarded for their efforts.
For others the path is not nearly so smooth. Steve cites the example of a family-owned company that was set on selling to private equity (PE) investors, but hadn't prepared the business in that way, causing “significant angst”. The owners neglected to build a strong management team who could take the business forward post-exit. As a result, the transaction is on hold whilst the shareholders consider how quickly they can backfill the management roles before taking the company to market.
This illustrates the need for both early planning and optionality. It’s prudent to consider running a twin or even triple-track process, giving yourself the flexibility to switch exit strategies, for instance from a PE deal to a trade sale or stock market flotation in line with changing circumstances. After all, markets move and sentiments shift.