Taking an opportunity to exit a business is a major event. Neil O’Gorman paves the way for a smooth journey
In Brief: Preparation and good advice are key to securing a successful business exit. Taking steps now, even in contemplation of an exit far in the future, can help to maximise value, navigate potential obstacles and take full advantage of any exit opportunity.
Planning and organisation are vital to any exit transaction, both for seizing the opportunity when it arises and for securing the best possible return. As experienced transaction advisors, we recommend that every exit strategy should incorporate the following:-
1. Clear and Objective Analysis
A seller should put itself in the place of a buyer and carry out a clear and objective analysis of the business, assessing its strengths and its weaknesses. Recurring revenue, scalable products and strong management teams are examples of selling points to be emphasised. Conversely, ongoing claims, lack of long-term contracts or inconsistent financial performance are examples of potential deterrents to be mitigated.
2. Prepare for Due Diligence
A buyer will carry out a due diligence exercise across all aspects of a target business. This is important for a seller as the implications can be very significant – ranging from price reductions, to indemnities to cancellation of the transaction. Due diligence can be a demanding process, but proper preparation and management and an organised and comprehensive approach to record-keeping can minimise disruption to the business as well as present a positive image to the buyer.
This is often a buyer’s first detailed interaction with the target business and any seller should note that first impressions can be lasting impressions. A clear, comprehensive and efficient due diligence exercise can reflect well on the business and give a buyer confidence from the outset. However, a disorganised or disjointed due diligence exercise can raise concerns. A buyer can be particularly influenced by financial information, often the first item on any due diligence agenda.
3. Obtain a Valuation
To prepare for negotiating an exit price, a seller can arrange a professional valuation of the business for clarity on its value and on valuation methods. Through this process, a seller can identify the areas of the business where value is gained or lost and use that information to increase the value of the business.
4. Engage Experienced Professional Advisors
An exit is a high-pressure and high-stakes transaction, often a once-in-a-lifetime event. It is crucial to have experienced advisors (financial, tax and legal) who can guide a seller from start to finish. It is commercially vital that the sale is structured properly for the seller and the terms are negotiated as much as possible in the seller’s favour.
How we can help
We offer a “Legal Health Check” to develop an understanding of legal risks before they become problematic. Additionally, our Pre-Sale / Investment Workshops are collaborative sessions to enable clients to gain a greater understanding of transaction agreements and risks. They give business owners deeper insight into their business and the legal risks that may be identified by a due diligence exercise.
To Sum Up
Whether or not they have a specific exit strategy in place, many entrepreneurs are on the lookout for an exit. There are a huge number of factors in every such transaction and any number of obstacles that can impact the outcome. However, with proper planning and good advice, sellers can take steps now to give themselves the best possible chance at achieving a successful exit.