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Exit strategy and planning – Getting the most for your company when you decide to sell – Part 1

March 7, 2017 by Peter Kroeger in Uncategorized with 0 Comments

Part 1: Why planning is vital and the route to exit

Exit planning is perhaps the most difficult yet most important period in the life cycle of Small Medium Enterprises (SMEs). It is an event that probably only happens once, yet has a profound effect upon the future life, particularly in retirement, of the owners.

Research clearly shows that many owner managers fail to achieve full or fair value for their business during the exit process. The key reasons for this failure are:

  • Unrealistic value expectations and timescales
  • Poor preparation within the business prior to the sale
  • Unwillingness to use professional advisors
  • Inadequate resources allied to the exit process

Planning for your exit strategy

Planning a strategy to maximize the value of your business on sale requires careful advance planning. You should start considering the issues several years before you plan to sell. The actual exit process will take 6 to 12 months and may require varying degrees of preparation of up to several years, depending on the condition of the business prior to sale.

Exit strategy and business plan

This business plan is aimed at maximising your value at the point of exit. It should consider all the issues that will affect your valuation – see the next article – and exclude anything that is likely to reduce your valuation. In particular, all investment in non-productive assets and costs should be reviewed and challenged, and preferably stopped.

The business plan should also identify the potential exit routes, and in the case of a Trade sale, the types of potential acquirers even naming them if appropriate.

It is best to employ Professional Advisors to assist with preparation of this business plan.

Exit routes

There are several different types of exit routes open to owner managers:

Trade Sale Selling your business to another organisation. Note that in my experience, less than 1 in 10 are sold to direct competitors.
Family Succession transfer Passing the business on to the next generation of owner
Management Buy Out (MBO) The existing management team and/or employees buy the business.
Management Buy In (MBI) Outside investors acquire the company and put in their own management team.
Buy In Management Buy Out (BIMBO) This is the most favoured exit route for providers of debt funding.  Where the Management Buy Out team (MBO) is unable to either raise the equity or debt funding package, they seek an outside management team to strengthen the credibility of the debt lending proposition.
Vendor-assisted MBO/MBI The shareholders of the company agree to sell their shareholding in stages
Merger with another company The shareholders of two businesses merge their companies and a significant part of the management remains to run the joint company; generally small amounts of capital is paid to any shareholder at the outset, though one or more may realise their capital in a reasonably short space of time
Initial Public Offering (IPO) A company flotation through an IPO takes your privately owned company into public ownership, with the shares traded on a market such as a stock exchange.  In an IPO, the shareholders will usually sell a small percentage of their shares and issue a block of new shares.
Selling assets and closing down Worst case option – only if needs must…. all other options preferable!

More to follow next time.  Please feel free to get in touch with me at peter@klopartners.co.uk or on 07904 766230..

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