SPECIAL REPORT Exit strategies: Ways to ge
If your end game is to exit then you need a professional gameplan. Here, we highlight the key areas business owners need to address in order to get fit for sale, maximise value and attract buyers.
Marcus Allchurch T
here is an appetite from PE houses to get into telecoms and the channel,
but many comms resellers evolve in an adhoc way and processes within the business are defined over time as they go along. In today’s environment of consolidation this traditional growth pattern has become a driver for the professionalisation of any business looking to exit. “Resellers that have evolved with little management time and attention dedicated to professionalising the business are running a serious risk of failing to sell for the highest possible price,” noted Marcus Allchurch, Telecoms M&A Specialist at BDO Corporate Finance.
“But more worryingly in an era of institutionalised aversion to risk, we have seen many buyers shy away from targets whose structure, books, records and accounts
have not been maintained to a high standard. What’s more, failing to put in place people, systems and procedures to professionalise the business on the basis of cost can be a futile exercise as canny buyers will adjust the profit so that their offer is priced off a ‘normalised’ earnings figure.”
A business being sold that has not been professionalised presents three possibilities, points out Allchurch. The deal will fall over as private equity cannot afford to take a gamble on a business with inadequate records and controls; the deal will take a lot longer than it should to complete as the parties work together to build up an accurate and reliable picture of the business; and the price will get chipped because an increase in risk has to be offset by a reduction in price. “The key to a smooth exit is ensuring that what you
tell potential buyers can be backed up by credible books, records, accounts and people,” added Allchurch. “That means investing in a robust provisioning and billing system, employing a qualified full time FD and other senior management if required, and taking professional tax and audit advice rather than trying to do it on the cheap. Overall, buyers have to be able to prove to themselves what you tell them, and have to believe that they can continue to run the business as efficiently (if not more so) than you.”
Peace of mind
In the short term, the benefit of professionalising a business is peace of mind that the company is sensibly set up for growth, capable of delivering to its customers and ready for a sale when exit becomes the priority. “If the business is set- up professionally there will be more confidence in selling the company for the right price in a sensible timeframe, and in all probability in building up to exit the company is able to grow faster and churn will stay under control,” said Allchurch.
Common sense is key to structuring a business, while reviewing the provisioning
platform, billing platform, sales team, technical team and finance team also pays dividends, enabling the business owner to fix any problems with skills and capabilities. “With a fully invested team, sellers should take time to ensure their legal, accounting and tax affairs are in order and well documented,” added Allchurch. “If there is sufficient time, invest in a reputable auditor so that buyers trust the accounts they review. A good auditor should add significant value as owners build to exit. Not only will buyers be more comfortable but the business should also be in a better position.”
Allchurch also suggests that building a relationship with other transaction focused professionals early on is a wise move. “Ideally this would be a corporate finance professional, but it could be an experienced consultant or non-executive director,” he added. “This person should help best position the business for a sale. Also, sellers should think about who the likely buyers are and what they are going to look for. With time to prepare the business thoroughly, and looking at the business
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through the lens of a buyer should enable owners to make the right decisions that maximise value.”
Knight Corporate Finance is in its third year and has completed many transactions in the comms sector. Owned and managed by Adam Zoldan and Paul Billingham who have worked in the comms sector for almost 40 years between them, Knight CF works with clients that are looking to acquire, raise finance or sell their businesses. Zoldan is currently seeing strong demand from PE houses for platform deals (the first acquisition in executing a buy-and-build strategy) that bring the infrastructure and management to bolt-on further acquisitions. “In the private equity world, their number one investment criteria is management and the way they run their business, if they don’t rate management there is no deal,” said Zoldan.
“Notwithstanding this, there will still be interest from trade parties including PE backed buy-and-build companies who are likely to leave management behind and professionalise the business themselves. Platform
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