Far too often, entrepreneurs embark upon their exit journey without knowing the necessary principles, tactics and strategies that drive successful exits in today’s world. If you want to maximize the probability of an optimal outcome, you need to first empower yourself with the relevant facts, knowledge and insights to make informed decisions from the outset that are going to considerably impact your exit. In the words of Albert Einstein, “You have to learn the rules of the game. And then you have to play better than anyone else.”
Here are three practical lessons that often surprise business owners considering an exit.
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Lesson 1: How investors value your business will vary considerably because valuation is part science and part subjective. The only way to truly establish this is through an international competitive process.
At the outset, the best you can hope for is an indication of the valuation of your business. The reason is that specific aspects of your business (e.g. your intellectual property, distribution channels, client list, production capabilities, etc) will have varying levels of attractiveness to different buyers. For example, a European buyer seeking to enter the U.S. market is likely to ascribe a higher value to your long-established distribution channels there, than another buyer whose U.S.-based business has been around for 50 years and has their own long-established distribution network. The European buyer may ascribe a value of X to your established network (since it would incur years of investment and establishment to replicate on their own), while the U.S. buyer may see no/little value in such.
This is the subjective element of valuation and it’s a major factor in how bidders assess value; and it can have a substantial impact on the price you receive at the end of the day.
In addition to the above, it’s crucial to your exit success that you conduct an international competitive bidding process. Engaging the full pool of highly targeted strategic and financial buyers worldwide for your business is the most effective manner to elicit multiple offers, so you can truly determine the maximum valuation and most favorable deal structure that a buyer would be willing to offer.
This approach is the only way to find the best buyer who is prepared to offer you the highest valuation, the best overall deal structure and who represents the highest probability of successfully concluding a transaction in the shortest amount of time possible. Identifying, researching and engaging the full universe of potential buyers will yield the greatest number of offers on the table. This empowers you and your banker to harness the competitive forces in such an environment to enable you to make an informed and confident decision about which buyer party is best for you.
Lesson 2: To maximize the probability of an optimal exit, ensure you/your M&A advisor develop, implement and execute an exit strategy that is comprehensive, global, and competitive.
Achieving an optimal exit is about much more than simply your company’s financials. True success lies in critical disciplines such as the effectiveness of your exit’s sales and marketing strategy, your advisor’s ability to establish trust-based rapport with investors, negotiation capabilities, and more.
To market a business today means to employ various disciplines in engaging with buyers so they take notice of your opportunity (remembering that target investors may see as many as 50 new opportunities per week). Marketing is about far more than employing email and telephone tactics. Think multi-modal marketing: email and telephone, but it also extends to LinkedIn, WhatsApp (text and voice messages), video calls/presentations, and more. Disregard the traditional marketing approach and enrich how your business is positioned with would-be buyers by incorporating additional marketing documents to highlight specific aspects of your business that investors will find valuable. Consider highlighting key industry awards won in a separate document to boost investor interest or create a video of your production facilities, headquarter offices, client interviews, etc. Remember, it’s about conveying a compelling storyline throughout and bolstering that message with additional marketing aids that will increase attractiveness toward your business, achieve greater cut-through against other opportunities competing for the buyer’s attention, and provide your M&A advisor with the content to deepen the dialogue with each investor.
Make sure that you are not targeting just one individual within each investor target. This is a common oversight amongst investment bankers and reduces your probability of success. STS Capital typically targets multiple named contacts per target investor, engaging with each via email, phone, and LinkedIn initially, then augmenting that outreach to include video calls, WhatsApp voice notes/text messages, and in-person meetings once we’ve established meaningful contact with each.
To create a competitive bidding environment, you need multiple bidders at the table. The only way to achieve this is through a global process where a highly researched pool of appropriate acquirers is intelligently targeted through multiple communication methods and the use of various marketing materials to continually enrich their understanding of your business. This will increase their interest and gives your advisor more opportunities to engage with each buyer, further strengthening the bond and enhancing investor interest and demand for your business.
Lesson 3: Building a trust-based and personal rapport with your buyers is essential for effective negotiations.
By establishing a positive rapport with each potential buyer, there is enhanced trust and transparency in all communications, something that bodes well as you enter negotiations. The best way to build a rapport and ensure your business is properly positioned to strategic buyers is by having highly informed M&A advisors who know your business inside-out; they know you and your senior managers personally. Your advisor needs to possess the right level of sector expertise, be likable, confident, and of the highest integrity to establish two-way communication between all the key stakeholders involved.
Armed with deep knowledge about your business and sector, your advisor will be equipped to identify synergies between potential buyers and your company to optimize discussions and develop ever-increasing attraction toward your business.
Conclusion
The sale of your business represents (for most) the most significant financial transaction of the entrepreneur’s lifetime. There is a great deal riding on the successful outcome of your exit for you/your shareholders, your family, company, staff, customers, suppliers, and the greater community in which you operate. Knowing the rules before you get in the game is therefore essential as it empowers you to make informed decisions from day one that will yield the highest probability of maximum exit success. Inform and empower yourself. Know how to qualify and engage the right M&A advisor for you.
“I work daily with potential sellers worldwide with the sole focus of arming them with the right tactics, conceptual framework, structure, and know-how to think about how to sell their business in a manner that maximizes their chance for a successful exit, however, they define that. Knowing what to do and how to do it is half the battle.” Mark Carmichael, Managing Director, STS Capital and author of The Intelligent Exit. To receive a complimentary copy of the STS edition, email ExpertGuides@stscapital.com.
Prepare yourself for an Extraordinary Exit with STS Capital’s expert guides. The value of working with sell-side advisors who were once entrepreneurs too is undeniable. They have walked your path before you, understand your concerns, questions and uncertainties, and possess deep experience in sell-side exits.
