Businesses eyeing a potential sale should embark upon a process of thoughtful, sustained preparation lasting up to two years.
That’s the view of Victor Basta, CEO and founder of investment bank DAI Magister.
A core part of any CEO’s job is achieving a successful exit, says Basta – and a clear focus on this in the months or years prior to an intensive, competitive M&A sale process will increase both the price and certainty of an eventual deal.
“Exit preparation should become a business process over a defined period,” he advised. “At its core, every company comprises a set of processes that operate efficiently to support growth.
“Exit preparation needs to become a process with a small group assigned for clear oversight and responsibility allocated, goals set, and outcomes evaluated.
“The time discussed is often uninvested as CEOs are unsure where to invest it, with most successful growth CEOs delivering perhaps one, or at most a handful of successful exits in their careers. Adding someone to the CEO’s circle with this context, well before an exit, can help a CEO navigate the process with confidence.”
Strategic buyers have no interest in a growth company’s current numbers and care more about what they can do with the acquired company post-close, claims Basta.
“One of the biggest mistakes CEOs make in exit planning is to focus on refining forecasts in the way they have learnt when planning a funding round,” he explained. “It is more important that a company exceeds its near-term forecast by even a small margin.
“For instance, a company achieving $45 million in revenue having forecast $50m likely receives a lower valuation than it would forecasting $42m then achieving $43m.”
CEOs regularly under-appreciate the importance of risk reduction, he adds, while strategics think at least as much about risk as about upside and potential: high-value exits occur when a buyer is confident a company is exciting and safe to buy.
“Sale memorandums must also tell a compelling story by anchoring things a company has done, which even much larger companies find challenging,” continued Basta.
“This includes redeveloping a complete FinTech stack, breaking into an important but challenging market, signing one or more game-changing commercial deals, onboarding a difficult but high-value customer, or maintaining high customer satisfaction.
“An equity story should demonstrate how a growth company can multiply in size and expand its offerings. Large buyers are more interested in how an acquisition can drive revenue/value post-deal, how it helps the buyer ‘fix’ a gap or problem in a business unit or enables them to compete and win large contracts or customers.
“Furthermore, a compelling equity story should anchor and highlight a company’s core DNA. It is critical to be clear and emphatic on which attributes drive a company’s success and use that to distinguish the best buyers from those merely curious.”
Basta concludes: “It is clear first-hand how markedly better exits result from preparation before a sale effort. The reason half of sales processes fail a company is immediately an asset for sale, offering buyers a compressed time frame to make a strategic decision.
“Groups must be assigned for exit preparation to ensure the correct strategy is in place. CEOs must invest time into achieving a successful exit by conducting regular reviews with clear deliverables, ensuring management and the board see how exit prep has developed every two to four weeks.
“Lastly, sale memorandums must grip buyers and tell a compelling story defining how they stand out from the pack, communicating opportunities, exposing companies DNA and differentiating from competitors.”
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