Exit Strategy

“Our members … all current and former CEOs … were still talking about it long after you left the room.”

 

Maoshing Ni, PhD,
Second Thursday

Exit Strategy

““I’m amazed how you are able to put out so much info, on target, in so few words! If there is someone, thinking about selling, and he reads your newsletter, odds are, YOU GOT HIM!”

Phil Sabol, Business Valuation Expert, Management Alternatives Inc

Here are some interesting and disquieting facts:

  • Research tells us that 80% of the privately owned companies in the U.S. are owned by baby boomers who will be exiting those companies, or wanting to, in the next 5-10 years.
  • Two thirds of those privately owned companies have employees on payroll, removing the single shingle folks who operate out of their garage or spare bedroom, according to the U.S. Census Bureau.
  • Of that remaining majority, one in four expects to pass their business to the next generation – a gross overestimate, in our experience. Our estimate is more like one in ten.

Conclusion: most businesses whose owners don’t want to simply liquidate their companies and go home will have to be sold to outside buyers. Statistically speaking, very few owners of those remaining businesses have any plan in place to exit their companies profitably, despite the proven fact that the successful sale of a business requires several years of preparation. One advisor says: “it often takes a catalyst like an illness, divorce or other catastrophic event before the owner will begin working with my firm on a sale process.”

Given the number of businesses that will be disposed of by their owners in the next decade, fundamental supply and demand logic tells us that most will be sold for a fraction of their actual value to buyers who will have their pick of investment opportunities. The larger the supply, the lower the price to be paid. For many sellers that is likely to be fire sale prices. In our recent experience we’ve helped businesses complete transactions for up to 9X EBITDA; yet we’ve heard of companies being sold for half that multiple, or even less, because they weren’t perceived as being worth more and had not done enough to demonstrate a more positive view.

We offer a powerful alternative to that scenario – a way to develop and execute an exit strategy that will

  • identify the value drivers in a client’s business,
  • make improvements that will enhance those drivers with the objective of increasing the enterprise value of the business, and finally,
  • guiding them in building a team to complete a successful and profitable exit.
  • A team leader – the CFO Advisor – who will quarterback the strategy development, engage your team in the key roles, and bring in shirtsleeves executives from our team to fill in where your people don’t have the experience or bandwidth to do what is needed.
  • A team of senior financial executives and analysts skilled in exit planning, due diligence preparation, financial planning and analysis, mergers and acquisitions – exactly the skill sets you are going to need going forward.
  • A firm of professionals who truly understand the unique challenges of preparing an entire company for sale, of helping the owner(s) prepare emotionally and strategically for letting go of what is arguably the largest asset they’ve accumulated over a lifetime of work, but only for a price that truly represents its value to the marketplace.

In approximate order of events, a series of meetings and work sessions over a year or several years may look like this:

 

  1. We get an understanding of your business and your exit goals and expectations – some of which we may help you to think through, such as: what comes next in my life? Some areas we’ll need to understand:
  • The current state of the business – its profitability, growth prospects, products, markets, etc.
  • How you would like to exit – timetable, sale vs. generational transfer, outright departure or phased withdrawal, e.g. ESOP, etc.
  • Strength of the internal management team when you’re no longer there to guide them
  • The quality of your financial team that will be producing critical information and defensible reports spanning years past and forward
  1. We will work with you to develop a plan and a timeline to exit – what needs to happen and when in order to meet the end goal.
  2. We’ll direct a dry run due diligence review to find any accounting and reporting issues, documentation weaknesses, contingencies that a prospective buyer might use to negotiate price reductions or large contingency reserves.
  3. Your team leader will work with your tem to carry out the plan, engaging key players for the plan as needed. Those will likely at some point include:
  • A creative investment banker (or business broker for smaller companies) to orchestrate a bidding process and close the best deal attainable,
  • A skilled M&A attorney to guide you through the legal processes to come and make you aware of the risks and contingencies to accept or avoid,
  • A sharp tax advisor who knows how to minimize exit taxes from this sizeable transaction, from your CPA’s firm or one of our resources,
  • A top notch wealth manager to guide the after-transaction investment strategy, who will help you re-invest or protect your proceeds in a manner consistent with your risk tolerance and investment goals.

In our collective careers we’ve done or supported deals that were similar in many respects to yours. Some larger, some smaller. Some simpler, some more complex. We understand how to react effectively to the unexpected, and how to respond to the attempts by prospective buyers to downplay the value of your business. We have a strong track record of supporting your investment bankers in negotiations and backing them up (and you) with sound ideas, well documented financial reports and supporting analysis. We’ve been doing this for over 30 years, and we’re really good at it.

Please feel free to contact me at gene@cfoforrent.com for an exploratory conversation with no obligation.  We will be glad to hear from you.