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We’ve all heard of billion-dollar exits in the States, but what about smaller businesses over here in the UK? Chris Chapman explains how to get your exit strategy right.
Chris is passionate about small businesses getting access to the kind of top-level financial experience that is often reserved for bigger, more established firms. He believes this is absolutely critical when an SME is preparing for an exit, whether an IPO, trade sale or other alternative. Getting the best price is not just about the technology, product or service you offer, it is also about making sure your business model, team, structure and track record is the one the buyers with the biggest wallets want to buy.
Types of exits for UK SMEs
Most of the exits we see with our Numitas clients are IPOs or trade sales and it is true that there’s a real feeling in the market that the only place for successful exits these days is the US. That’s really about the fact that the big players with the deepest pockets are headquartered in the US so it shouldn’t be a big surprise. But we’re starting to see a shift, and early-stage technology companies are definitely seeing more opportunities in the UK.
The secrets of a successful sale for an SME
There are many factors to consider and plan for, but one of the most important is that it is vital to separate managing the process of preparing for sale from what you are doing to run the business.
Due diligence is tough and buyers will examine every nuance of your financials, commercials and contracts. That’s why you need to have someone in your management team who is responsible for managing the sale and nothing else.
The rest of the business has to be insulated from that process as you still need to hit your numbers and continue growing the business while you are in the process of selling it. I’ve seen it happen too many times that the MD of the company focuses on negotiating the exit and the sales performance falls away and so does the buyer. There’s little that will put a buyer off more than not meeting forecasts or budgets in the middle of discussions.
Helping businesses through this process
At Numitas, we have experts who have worked on multiple sales and acquisitions throughout their careers. It’s a complex and very time-consuming process. In any sale there is protracted due diligence, lawyers, contracts and a number of other professional advisers to deal with. Buyers are choosey and worst-case scenario is that your due diligence doesn’t stack up and the buyer walks away. Even if that doesn’t happen, if you try to do it all yourself there is a real risk that you end up giving away too much value because the buyer sees the company underperforming and negotiates down the price. Our experienced CFOs go in and stage manage the whole process pretty much from start to finish.
What experts look for
The sorts of things that experts look for can vary massively from business to business and sector to sector, but essentially you need to make sure that the business will continue to hit its numbers that justified its sale price, once it’s part of a larger organisation. This could include normalising profits.
What that means is that sometimes the MD can be taking a nominal salary and re-investing everything back into business growth. Alternatively, the MD could be taking a much higher slice of the profits out of the business to fund a particular lifestyle.
Normalising profits means adjusting the accounts to show a salary against that role which reflects what the new owners of the business would have to pay a member of staff to drive that growth. It can be key in demonstrating a return on investment for the buyer.
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