Most founders know they will sell at some point. Fewer have done the work that determines what that moment is worth.
David O’Kelly, Corporate Finance Partner at KPMG, sets out the things that matter most.
At a glance
Why preparation can influence deal value
For founders and owners of medium-to-large private businesses, the question of value is rarely far from their mind. Whether you are planning a transaction in the near term, considering a partial exit to de-risk, or building a business that is fit for the future, the fundamentals are the same.
David O’Kelly is a Corporate Finance Partner at KPMG with 27 years of M&A experience. He has advised on transactions across a wide range of sectors, working with founders and management teams at every stage of the deal cycle.
O’Kelly believes there are three requirements to maximise value:
How do you build a credible investment case?
The starting point is a compelling narrative that gives a buyer or investor confidence in where the business is going and how it will get there. “If we are selling a business to private equity I need a five-year plan that demonstrates the business will grow significantly over that period,” says O’Kelly.
This preparation is particularly important when selling a business to private equity because the investment case needs to explain how the business can grow. What makes a case credible? You need to know your market in granular detail. Who are the customers you are going after and what is their wallet size? Are there adjacent markets you are not yet serving?
Market opportunity and competitive positioning
If M&A is part of the growth story, have you identified the targets and are you already in conversation with them? Equally important is differentiation, supported by clear competitive analysis. “You need to be clear on what your competitors do and how you do it better.”
O’Kelly advises that external support can be beneficial in augmenting the narrative. A strategy team that talks to the market can identify issues that management may not see from the inside.
That might mean discovering that your pricing is below market and you are leaving margin on the table, or it might mean identifying acquisition targets that would make your existing clients even more valuable.
Where acquisitions form part of the plan, M&A advisory services can support target identification and transaction planning.
Why management depth and governance matter
Of all the reasons buyers or investors walk away from a deal, O’Kelly says the management question is among the most decisive. A founder who is ready to exit but has no professional management team around them, no management succession plan and no governance infrastructure to speak of is presenting a buyer with a risk they did not price for.
The issue is acute in businesses where the founder has been the centre of gravity for decades. “If you’ve been a dominant boss and nobody has disagreed with you in the organisation for years, you are probably not set up with the right management team,” O’Kelly observes.
“Have you taken the right steps around board governance and executive incentives? Do you have a functioning management team or has the business become entirely dependent on the person who now wants to cash out?”
How do you prepare a business for due diligence?
Premium valuations go to businesses that disclose detailed financial information and metrics. “The data cube concept has become standard in the past couple of years,” O’Kelly explains.
“This is the ability to evidence margin analysis, profitability by customer, customer longevity, and revenue trends by account and by line of business. If you want a good sale outcome you are now expected to support your investment case with that level of data analysis.”
Operational and compliance readiness
On the operational side, housekeeping matters. Employment contracts, insurance, historical disputes, GDPR compliance and cyber risk are issues that emerge during due diligence. If unresolved they can become deal breakers regardless of their commercial significance.
Why time kills deals
“Our mantra has always been that time kills deals,” O’Kelly adds. “If you go to market unprepared, problems will arise. They may not be terribly important in commercial terms but when you’re asking someone to take on ongoing risk they can become very skittish about items you’ve lived with day-to-day.”
When is the right time to plan your exit?
Underlying all three points is O’Kelly’s conviction that the businesses that maximise value are the ones that treat these disciplines as ongoing strategic priorities, not last-minute preparations.
“Very few founders today say the business must pass down through the family,” O’Kelly reflects. “Most are of the view that if they leave their family a portfolio of liquid assets, that’s probably a better outcome than leaving them a business that requires ongoing expertise to manage. In practice, most founders are sellers at some point. If that’s the case then preparation, investment case, and management team need to be on the board agenda well in advance.”
Quality matters more than timing
O’Kelly adds that in any market environment, really good businesses secure great deals. “It’s the good-but-not-great companies that struggle when conditions are tougher, and below-par companies struggle in any environment. So timing matters less than quality.
One other consideration is that we often see a mindset shift in founders who de-risk by selling a portion to investors. Separating family net worth from the company shareholding allows for more company-centric thinking - what’s genuinely right for the business as opposed to what’s safest for the shareholder’s personal balance sheet.”
Future-ready checklist
Talk to KPMG Corporate Finance about transaction preparation
KPMG Corporate Finance advises private and family businesses on M&A strategy, sell-side advisory, transaction preparation and value maximisation. To discuss how KPMG can support your business, contact David O’Kelly, Corporate Finance Partner, KPMG.
Niall Savage
Partner, Head of Private Enterprise, National Chairperson of Audit Committee Institute
KPMG in Ireland
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