You’ve worked hard to build your business, so don’t sell yourself short: make sure you optimise its value. As you enter the second stage of your preparations, anywhere between 12-36 months ahead of exit, there are eight steps you can take to boost performance and prevent value from leaking out.
Additionally, as covered in greater detail in the benchmarking section of our Road to Exit guide, you can compare your business to its wider industry and best-in-class companies to identify key areas in need of improvement.
Owner-managers often believe that, because they have done an outstanding job of building and running their business and know it inside out, they’re already in a good position to sell for the top price. The stark truth is that if you don’t take appropriate steps to optimise performance, you may end up leaving millions of pounds on the table.
Mike Mills, Deal Advisory Partner at KPMG, offers the recent example of a retailer whose owners hoped to achieve a speedy and lucrative exit. However, once it became apparent under pre-sale scrutiny that there was enormous scope for operational improvement and that digital plans and broader business strategy lacked rigour, compromising sale price, the owners pulled out of the transaction.
In short, they were overwhelmed by the process. “They had to slam the handbrake on to stop the deal process from careering over the edge of a cliff, and have a good long think about what they needed to do,” says Mike.
Eight steps to optimising value
If you’re an owner getting ready to exit your business, you have eight objectives for optimising value.
First, begin by telling a clear equity story, and second, outline the compelling market growth opportunities that your business is pursuing. Third, remember that investors back management teams. As such, it’s vital to have talented, motivated and aligned leaders running the show who have an impressive track record and the capability to execute on strategy.
“Think hard about the clarity of vision among the management team. Particularly for financial investors such as private equity, they are looking to back management teams and support the business through its next phase of growth,” comments Adam Thorpe, Strategy Group Partner at KPMG.
“Our experience shows that planning this properly and aligning vision and interests among the senior management builds real investor confidence. They are buying the future, not the past performance, and they need to believe that the management team they are backing is clear, aligned and capable. If you get that right you are well on the way to driving real exit value.”
The remaining five criteria to aim for are: achieving and planning further top-line growth; a sales and operating model fine-tuned for success; best-in-class margins; strong cash conversion levels and optimised working capital; and finally, a management reporting and IT system that supports all of the above.
Plan now for a quiet life later
There’s no denying that this can be an emotional and demanding process – you’re getting ready to part with something that’s been a major part of your life, something that you’ve built up yourself. But the key to success lies in careful preparation. “I always say, plan in advance,” says Mike. “What you don’t want to be doing is coming up with value improvement plans while you’re running your business as well as a sales process.”
It can be hard for owners, after years of nurturing their business, to accept advice from external advisors that runs counter to what they are used to doing. “The trick to staying open-minded is remembering that everybody shares the common aim of achieving the best deal possible,” says Mike.
Data can deliver powerful results
KPMG has developed powerful benchmarking and analytical tools that use big data to help identify where performance improvements can be achieved. Comparisons are made between private businesses and their peers across a wide range of detailed metrics using sanitised data from KPMG’s audit and deal work. The team can then drill down into which KPIs and operational levers to address.
“A buyer will pay a high multiple rather than a low multiple if they are absolutely convinced they are buying a platform for future growth,” says Adam. “But plans need to be real and executable. Otherwise it looks like I sat up last night thinking, wouldn’t it be great to expand my widget-making business to the US and Europe? And I have done absolutely nothing about it apart from some nice graphs looking at the size of the widget market in Europe and the US!”
But it’s a different story for fast-growing businesses able to demonstrate action and momentum – for example, by building strategic alliances, identifying acquisition targets or winning an international contract.
Business owners should explore their exit options thoroughly. “There is an evolving investor market and I don’t think it’s quite as easy or clear-cut as it used to be to say which people would be interested in buying your business,” says Adam.
All the more reason for optimism – for those who address the drivers of value.
- Put a strong management team in place and tell a clear growth story, supporting your plans with credible evidence.
- Ensure you are operationally efficient and have the right-size cost base for your business going forward; or at the very least, show you have begun a journey in making cost savings.
- Sharpen up the cash-generating effectiveness of your business.
- Keep an eye on your digital footprint; buyers will check online for customer reviews and employee comments.
If you want to know more about transforming your business so that it consistently delivers to a high standard, download our Road to Exit guide or get in touch with us to talk about your own strategy.
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"It’s vital to have talented, motivated and aligned leaders running the show who have an impressive track record and the capability to execute on strategy."