Preparing you and your business for an exit

    There were an unprecedented number of transactions among Solent 250 companies in the past year. Over 10 businesses were sold ‘out of’ the Solent 250, including SHB Hire, Adams Morey, Lewmar, and BOFA International to name a few, and many more completing partial buyouts while remaining privately owned. This demonstrates not only the calibre of businesses within the Solent 250 community, but also how buoyant the levels of corporate M&A have been in the past 12 months – despite the political headwinds we’ve seen with a general election, Brexit and US foreign policy.

    A business exit is often a once in a lifetime event for a shareholder. Preparing a few years ahead of an event will ensure you achieve a deal that meets your aspirations. Clodagh Tunney, corporate finance director at RSM, offers some suggestions around the preparation you can do ahead of an exit event.

    It’s personal

    Your personal aspirations are a good place to start. What do you want from a transaction? What do you need to move on to the next stage of your life? What is your personal timeframe? Once these are clear to you, exploring the requirements of the other shareholders (ie how aligned you are) will point you in the direction of the right type of transaction for your circumstances.

    Keep your options open

    Trade sale, management buyout, private equity or a market listing (FTSE, AIM or Overseas) – depending on your circumstances your exit is likely to come in one of these forms. There is a level of risk in any transaction, so plan to have an alternative option. For example, if your preferred option is a trade sale, this may involve investing in a management team that is credible for investors to give you the option of a management buyout as an alternative exit route.

    Be strategically important

    Be clear about why your business is attractive to a potential buyer or investor. Research what is important to them. Align your strategy to be strategically important, preferably to several buyers. Acquirers buy to meet a strategic need they can’t build themselves fast enough. Be known to them and be the solution.

    Maximise value

    There is no one way to value a business, but valuation theory is that a business is worth its future cashflows adjusted for the time value of money and the risks associated with those cashflows.

    What do we mean when we talk about a business being valued based on EBITDA multiples? EBIT/EBITDA is an abbreviation of ‘Earnings Before Interest, Tax, Depreciation and Amortisation’ and is a metric used to estimate cashflows. The multiple represents the growth and risk associated with the business’ cashflows. So, if your EBITDA is £1 million, and the multiple you arrive at is 10, you might value your business at £10m (simplistically speaking). There are many ways to increase both the EBIT/EBITDA and the multiple, starting with:

    • Articulating your growth story

    To maximise the perceived future cashflows have a well-defined growth story. Demonstrate the growth potential of the business by starting to deliver the growth strategy but leave some growth for the buyer.

    • Reducing perceived risk

    Consider the risk perceived by the buyer. Preparing a couple of years ahead of a transaction gives you time to sort out those contracts that an outsider may not think are sufficient to protect the business, reduce customer or supplier concentration, reduce reliance on key people and tidy up your statutory books. Due diligence (commercial, legal, technology, tax) will be undertaken by a buyer during a sale process – tackling any risk areas in advance and fixing them will pay dividends further down the line. Tax is key here – many transactions fail due to the uncovering of a historic tax issue/ liability that the buyer is not willing to take on. Time spent undertaking health checks on your key taxes (corporate, VAT, income tax) will be time well invested, and minimise tough negotiation on price later on.

    • Considering timing

    The best value will be achieved when the timing is right. It’s unlikely that timing will be right for the business, the market and the potential buyers. It is better to exit when the buyers are hungry and the market is stable than to wait a few years for the business to be in an ideal shape. Preparing ahead will enable you to take advantage if the timing is right for the buyer.

    • Focusing on cash in hand

    Maximising value is about maximising the cash in your hand. Shareholders and management alike should give early thought to both equity, and share options, and the likely tax liability on an exit. To qualify for entrepreneurs’ relief rates of capital gains tax, you typically need to meet the necessary conditions in the two years leading up to sale. This is equally relevant to share option holders – getting this wrong makes for unhappy shareholders and optionholders.

    Cash paid on completion will be adjusted for cash, debt and working capital, so to optimise your position on these adjustments start planning now.

    • Introduce competition

    Competition drives value. This doesn’t necessarily mean that you need a wide auction process, in fact this can be a turn-off for potential buyers/investors. A good adviser will help you explore the best process for your circumstances. Even if your process involves just one buyer, the involvement of an adviser highlights to a buyer that alternative buyers could be brought into the transaction should they move away from the requirements of the seller.

    To find out more about being exit ready visit and search for ‘exit ready: preparing you and your business for sale’ or ‘private equity’.

    For further information:

    Clodagh Tunney                    corporate finance director

    01179 452066


    James Tetley                        tax partner

    02380 646406