Selling with certainty in 2020
Thursday January 2, 2020
What to consider when putting together an exit strategy
If uncertainty was the major theme of 2019, as we enter into a new decade the outlook is a little brighter for business owners. Anecdotally, we know that many adopted a ‘wait and see’ attitude in 2019, keeping their powder dry rather than pushing on with expansion plans or deciding to sell their business.
It’s fair to say that the recent election has cleared some of the uncertainty that could have continued to shroud the market in the year ahead. As a result, the first half of this year is being seen by many as an opportune window to start getting deals done again, with investors keen to press ahead with strategic acquisitions or to put private equity to work.
Capitalising on clarity
With M&A activity back on the agenda, you will now have more options open to you as a seller than in recent times and this means you can be more selective with potential suitors.
With that in mind, my number one piece of advice if you are looking to capitalise on the clearer landscape over the next six months is to set clear goals about what you want to achieve from the sale of your business. A sale can be motivated by a range of factors, from simply being a lucrative opportunity to personal circumstances or challenges on the horizon dictating an exit. Being clear about your goals and motivations will enable you to maximise the sale price and ensure you leave the business in safe hands.
Defining your goals will also help you to determine your best route to exit, and in less uncertain times, there are more options to consider:
Go to the open market
This is the most popular exit strategy option for SMEs and it is usually employed when the owner is looking ahead to their retirement. You can market the business for sale to realise an exit for the maximum price and hopefully walk away leaving the business with a new owner in place that will continue to develop and grow the business.
Keep it in the family
This is a popular route for many small business owners and it can allow for a smooth transition if there is a younger family member already ready to take on a leadership role. Another positive aspect of this option is that you can still be around to keep a hand in the business in an advisory or financial capacity. However, developing a familial succession plan can be complex, particularly if there are a number of potential successors, so it’s important to be clear of your intentions throughout the process.
Selling to managers
A management buyout (MBO) can boost the loyalty of your senior team and also help to motivate employees through any periods of change as the day-to-day operations of the business often remain unchanged. A popular hybrid of this option is a two-stage exit (also known as a partial exit) to management which not only de-risks the owner to an extent but can also deliver the benefits of a traditional management buyout to the management team and employees. The owner can then realise a full exit in the future at a potentially higher value.
In either scenario, it is still important to focus on good communication between employees, clients and any adviser through any period of change.
Sell to another business
Marketing your business as a desirable acquisition opportunity for others can be profitable and M&A activity can be prompted by many reasons; from expansion and consolidation to simply buying out the competition. If your main priority is to gain the highest price possible, with a lower emphasis on the future of the business, then this can present a valid exit option. You could also still be part of the business moving forward – even after it has been acquired.
While not suitable for all businesses, an Initial Public Offering (IPO) can also be an extremely profitable exit strategy – but the road to becoming a public company can be long and costly. A point to consider is that public companies have much stricter compliance and reporting standards and, as an owner, you may be personally liable for any accounting irregularities or failures in disclosure that occurred prior to the IPO.
Ultimately, the ideal exit strategy is the one that best fits your commercial and personal goals. If it’s simply the highest price available, an exit strategy such as selling on the open market or to another business may be the best option. If your legacy and seeing the business you built continue are important to you, then family succession or a management buyout might be best.
Whichever exit strategy you choose, planning in advance will give you the time to do it right – and maximise your returns. With so many plans put on hold in 2019, hopefully you have already spent plenty of time defining your goals. If not, now is a great time to start.
The first half of this year is being seen by many as an opportune window to start getting deals done, with investors keen to press ahead with strategic acquisitions or to put private equity to work.Mark Naughton Corporate Finance