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SPECIAL REPORT et fi tter for the end game


deals warrant a strategic premium and go for the highest valuation multiples. At the moment this is being boosted as demand is certainly outstripping supply which creates an opportunity for higher prices.”


Planning for sale For a reseller looking to exit and maximise the value of their business, it’s a matter of planning the exit and knowing the buyers, observes Zoldan. “If you run a simple business that is likely to slot neatly into a larger company, there is no point investing time and resources in areas which will not have any value attributed to them by a buyer,” he said. “However, if you are building your business to grow this should be your number one priority. Know your key performance indicators from sale through to billing and retention, and ensure your systems can deliver the information you need to run your business.”


The key benefits of putting professional foundations in place before looking to sell depends on exit time- scales. “If its a matter of months you are out of time,” added Zoldan. “You should focus on making your


business transferrable and ensuring your house is in order in terms of contracts, financial reporting and management information. If there are skeletons in the closet you need to face up to them as they will almost certainly be dug up during a sales process.


“If you have longer term plans you have time to focus on systems and infrastructure and importantly enhancing management. The biggest mistake owner managers make is demonstrating how important they are to the business. Ideally you want the business to run without you so a buyer can benefit from the value you have created in your business. This will result in enhanced value.”


The extent to which an unprofessionalised reseller business can hinder deals and keep prices down depends on how different PE houses operate and ultimately what they are looking for, says Carl Churchill, Managing Director, Daisy Wholesale. “While a significant number of PE houses are looking to buy businesses in their entirety, others are on the hunt for companies that they can integrate into businesses


If Adam Zoldan


there are skeletons in the closet you need to face up to them


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they already own,” he noted. “For PE houses that may be looking to acquire businesses to act as a foundation to integrate others into, resellers cannot afford to be unprofessionalised.”


On the other hand, robust processes are not as important to PE houses that are solely looking to buy customer assets, says Churchill. Integrating these into a business they already own means an existing structure is already in place. “Ultimately, the extent to which unprofessionalised reseller businesses can hinder deals can depend on whether the PE house is looking for a foundation for growth or for company assets to integrate into another business,” added Churchill. “A reseller business which is process driven and structured will be more appealing to a PE house that is looking to acquire the whole business, rather than certain assets.”


Process driven However, that is not to say that all businesses should not look ‘clean’ and process driven. This will not only make it easier for PE houses to properly assess the business, identifying where the opportunities and risks are, but encourage them to provide a more generous valuation. In order to professionalise their business, it’s extremely important that resellers have a strong and demonstrable handle on their numbers. “This includes being able to present consistent, accurate gross margin EBITDA calculations and showing that you can break down your costs well,” added Churchill. “Having a strong handle on your numbers is not only going


to be beneficial to the PE house, but your business in terms of the value placed on it. If a PE house carries out its history revision only to find your financial performance is not up to scratch, this is not going to stand in your favour.”


Realistic pipelines In addition to a lack of churn, PE houses will be keen to see that the pipeline performance is not only genuine but also realistic. Ultimately, what PE houses want to understand is what the future opportunity looks like. Churchill commented: “To provide them with the best possible outlook resellers need to demonstrate they have a good handle on their numbers, a good handle on their customer performance and, from a sales perspective, a good strong robust pipeline which will lead to accurate forecasting so they can see an obvious future for the business. The more professional a business appears to PE houses, the higher the value you can command. If a PE house is looking for a business that is going to be used as a foundation to integrate


other businesses into, that business must have a professional foundation and a solid structure in place.


“Having all those foundations in place is not only going to be beneficial to the PE house but also your business in terms of the money you receive for it. A PE house will always pay more for a business which has gone to the effort of making sure those foundations are in place and can clearly demonstrate its worth.”


Most small businesses are effectively but not efficiently run, and are not an operational fit for a bigger business, reckons Richard Btesh, Director at Chess. “For Chess this is not a problem because we know what to do. For a PE house this is a strategic investment decision,” he commented. “Due diligence is undertaken and although it is rare to find a business operation that simply does not work it is expected that to be professionally run there is a need for investment. This works in favour for the PE house as the inherent EBITDA/ Enterprise Value increases.” n


ZOLDAN’S TOP TIPS


• Consider your personal aspirations and know what you want from the sale and your plans afterwards.


• Plan your exit and understand your buyers, especially when investing in your business.


• Get your house in order. The key to a successful sale is establishing credibility and trust and delivering on your promises throughout a sales process.


• Make a firm decision to sell or not to sell. The sales process needs to be well managed and competitive to deliver maximum value, changing your mind will impact your business.


• Use an adviser who understands your business. The sales process can be drawn out and emotional, and you still have to run your business.


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