For effective CEOs in growing companies, being approached by the competition and financial groups for acquisition will happen – successful companies have the market beating a path to their doors. To be ready for the first knock, CEOs must prepare for the process by making exit planning a regular component of their annual budget and business development program.
The first step in this process is to define what the exit objectives are. After all, it’s nearly impossible to get there without a definition of what a successful exit looks like. If the company is performing well and is approached but is unprepared, this usually means the advantage goes to the buying group and not to the seller. Waiting until the end of the process to consider the exit objective can lead to disastrous results.
Like all goal setting scenarios, starting with the end in mind is key. Who would think about starting a trip without knowing the destination? Whatever the objective – whether it’s $100 million in sales or $500 million – knowing where things stand today and how the market views the company is valuable planning information.
PLANNING FOR THE SALE
Once the long term goal is defined and the current status determined, what does the company need to do to implement and reach the goal?
If it’s growth by acquisition, here are several risk factors:
Remember, removing risk for a buyer is another way of saying that systems are in place to monitor and run the company without constant management oversight.
Looking at the tax consequences in early stage planning could provide a significant benefit to shareholders.
What type of buyer facilitates or adds more than just money to the equation? Companies often have holes, ranging from incomplete product lines to inadequate board oversight. The right group or acquirer can have a very positive 1+1 = 3 effect and, unfortunately, the wrong group could be very destructive to the long term wellbeing of a company.
The exit planning process is a team event. Have the team established early in the process. Determine early who the investment banker is and how they will work with the company. Do they have practical real world experience in the subject industry or are they financial engineers taking a one way fits all approach? The deal attorney and accounting firm should have practical transaction experience. This is usually the most important transition a company can make. Have the best people to work with as part of the process.
Good managers know where they want their company to go and always have a long term plan in place. Putting the leadership team into a long term goal setting framework will let everyone know where the company is headed and take out much of the shock that occurs from change.
By going through the exit planning process, it will be clear what the long term business plan for the company should be, and there will be a strategy with benchmarks to measure success. Defining the exit strategy for a company will significantly increase the likelihood of a successful outcome when the right buyer comes along. When that does happen, it is far better to deal from a position of strength when the right group knocks.
George A. Walden II is a Securities Licensed Investment Banker facilitating the buying and selling of companies. He is a principal in CFA’s Houston office and a member of CFA’s, Industrials (Metal Machining and Fabrication) Practice Group.” George is known for several industry-leading transactions winning the 2012 Industrials, “Deal of the Year” for the Middle Markets – The M&A Atlas Awards.