Maximising value on exit is a composite and refined process that begins in the early-growth stage of your business and continues through the development-capital phase up to the point you feel ready to “let go” of that which you have created.
Every material strategic decision taken by you and your Board has an implication for value on exit. The right preparation and strategic actions can have a positive impact on a company’s sale value, while a lack of preparation and planning could result in the loss of value.
Here are some key areas we highlight to our clients:
Market sector and business strategy
Whether it is an exit you are striving for or fundraising (by way of stepping stone to exit), the market sector you sell into and the products or services you offer will have a material impact. If you operate in a high-growth market, where your potential buyers are highly valued themselves, you are more likely to be able to command a higher valuation. A commanding leadership position in a high-growth niche market tends to be worth more than a small share of a larger generic market. This opens-up strategic value to potential buyers by enabling a new market which may be important to them and resulting in a bolt-on acquisition of your business.
Creating barriers to entry
Particularly for technology companies, the creation of high barriers to entry will drive up value. In many cases, protection of intellectual property is a key part of the value proposition and it is important to have a well-thought-out intellectual property strategy, which takes into account the geographies and market sectors of your business.
Courting your buyer
If you can develop strategic relationships with companies that are potential acquirers, you are effectively “courting” your eventual buyer. By working closely with them, you can start to impress them, or better still, make them dependent on you, which can help drive up your value in their eyes. Most large companies will maintain a “shopping list” of companies that they are interested in, so it is worthwhile investing the time to get to know them, and for them to get to know you, to make sure you are on that list.
How you decide to fund your business will affect not only how much of it you own when you exit but also your ability to control the outcome. Seeking external investment from angel investors, venture capital, private equity or otherwise typically means entering into a partnership which allows your investors a say in decision making, and a dilution of your control to some extent. It is, therefore, important to ensure (before signing up to any deal with external investors) that your interests and long-term objectives are aligned with them. This includes a meeting of minds when it comes to the time frame and milestones for exit. In the venture capital and private equity world the exit horizon tends to be 3 to 5 years from initial investment.
Consistency of narrative
When negotiating deal terms with your potential buyer, discuss with your advisers the type of deal you are looking for and then consistently incorporate this in your narrative with the other side from day one. For example, you may be looking for a coveted “all cash” payout on signing, which will contrast with the typical buyer preference for structuring the majority of your returns as deferred payments that may even be pegged to the future performance of the business.
In the same way that your Board consists of carefully chosen individuals with specialist knowledge and the right cultural fit, you will apply the same intellectual rigour when selecting your deal team of professional advisers. These will be specialists you instruct to maximise value and negotiate the term sheet and other legal documentation on your exit – a transaction you will most likely undertake once in your career.
For further information on Exit and Fundraising, please contact Nadim Zaman.
Nadim is an Exit and Fundraising specialist, recognised in the Legal 500, who focuses on maximising value, reducing risk and providing deep market knowledge to high-growth clients typically seeking to exit or fundraise.
Client testimonial from CEO of Hassle.com, Alex Depledge, following international exit:
“We have worked with Nadim on two large and politically charged M&A deals. Having appointed many lawyers over the years, I have found it rare for one to have a good handle on the legals whilst truly understanding the commercial and strategic landscape. Here is where Nadim excels as an advisor and I wouldn’t go into an M&A deal without him by my side.”
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.