Preparing for Exit

​​‘Preparing for Exit’ is a crucial topic for those at the senior executive level. If you are a CEO or Founder with ambitions to sell, there are several important factors to take into consideration, particularly if this is your first experience of preparing an exit strategy. While maximizing the value of your business is a common and important objective of the sale process, other objectives may include confidentiality, maintaining company culture, improving the value proposition, and ensuring your employees will be taken care of under new management. Importantly, a well-designed and well-executed exit strategy can create as much value as the work undertaken in the years prior to the exit taking place.

Jonathan McKay and I were thrilled to host this event and bring together a highly experienced panel. The panel have held critical positions as Non Executive Director, Chairperson, CEO and CFO, in addition to advising Private Equity houses on acquisitions. With an impressive total of 23 exits (including a FTSE 250 IPO) under their belts, 21 acquisitions and circa $4bn in equity value returned to shareholders, our panel was able to provide some key insights.

We would like to thank our panellists Debbie Wosskow OBE, Sarah Flannigan, Paul Goodridge and Andrew Coll for providing a thought-provoking conversation.

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‘You’re always on sale’

From Andrew’s perspective, there is no such thing as a long-term cycle for a PE-backed business. In the private equity world, you are considered to always be on sale. It is important to meet strategic and financial aims as well as having a solid 5-year plan. This means ensuring the business is meeting important milestones, which becomes vital approaching the 3-7 year PE investment horizon. Although there are continuous demands to maintain business growth and performance, as a leader you need to be acutely aware that your business may be scrutinised at any time. As the Covid-19 crisis shows, this scrutiny will not necessarily be at a time of your choosing.

“I am a short attention span founder and I’m looking at a 5-year horizon for all businesses” added Debbie Wosskow. She highlighted that the exit process is explicit – not implicit, and that having clear objectives while building for sale is paramount. Receiving initial venture investment will provide an insight into how to prepare for exit, and keep in mind that every time you raise capital (regardless of the investors) it should be clear that you are building a business to deliver a return.

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Best practice and having a strong internal team

Paul Goodridge has a great track record of building and improving corporate functions. Paul stated that the first time he exited, he “started building the company not thinking about an exit at all”. He emphasised that every department and function should always be ready in line with best practice. In an IPO context, this included developing best-in-class forecasting tools and processes, whilst keeping the right mentality, avoiding falling into the trap of “as soon as the exit happens, I’m off”.

Debbie, member of the Mayor of London’s Business Advisory Board and Co-Founder of the Allbright, highlighted the importance of building a strong relationship with your company’s Chairperson. Debbie outlined how a good Chairperson will act as a sounding Board when transactional fatigue kicks in, ensuring that the best possible outcome is reached during the exit process.

All panellists agreed that a strong CFO is key as investors look to see sound financial management and controls as well as KPIs for strategic decision making already in place during their due diligence process. The ability to manage cashflow is always important (a sentiment that CFO’s would particularly agree with currently), this is never more so than during a transaction cycle.

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Specialists and consultancies

The panel agreed there is clear value in spending time and building relationships with advisors before a transaction is on the agenda and before there is an immediate need.

Sarah Flannigan, advisor to OMERS PE, plural Chairperson and a previous European CIO of the Year, stated: “The difficult thing is, you only need one advisor and you don’t want that person to give you the wrong steer”. She suggested conducting multiple low-level short engagement projects to assess advisors and their fit ahead of the transaction taking place.

As an advisor, Sarah focuses on assessing the tech strategy and capability of a business. She advises to “clinically conduct an assessment of your technology capability using people who have no relation to your business”, and to do it early. Are you operating your business entirely on spreadsheets? Do you have holes in your current technology? “You don’t want to be learning that when you’re close to sale – learn it early” she advised. The right people will provide an objective assessment of your company’s capabilities – so you can tackle any problems head-on.

Debbie spoke in-depth about the importance of having strong external help too, such as choice of a law firm and lawyer. “I’ve worked with the same partner, at the same law firm, on every single transaction” she said. Having people you are used to working with, especially as a founder is crucial. Paul concurred, concluding that “across your advisor base, whether it’s accountants, auditors or bankers, it’s all about trust and relationships”.

Maintaining team motivation

The panel discussed the challenges of maintaining tight control over the narrative of the sale and of remaining transparent around timeframes with the rest of the business, especially in a company of a certain size. Setting expectations early on can help to avoid a potential split in opinions and loyalty to the company.

Employee motivation, at all levels of the organisation, needs to remain high throughout the exit process, requiring effective internal communications from the leadership team. According to Paul, former CFO of CSR Plc and advisor to Highland Europe, although many senior executives will remain on Board with the process, junior members of the team may become demotivated. In an IPO context especially, “a lot of care and attention needs to be put in to ensure they are motivated both pre- and post-exit, and it can be hard to keep them from looking at the stock price every minute of the day”.

Andrew, CEO of Mycom-Osi (Inflexion backed) and multiple time exiting PE CFO, shared that whilst it’s important to be as transparent as possible, confidentiality is paramount to controlling the market narrative and can be a valuable tool in companies where not everyone will ‘have skin in the game’.

When discussing how culture fit can drive successes and failures, the topic of acquiror culture was brought up. According to the panel, it is important to assess the cultural fit with the acquirer during the due diligence process, with clear parameters in mind. However, Debbie advised that it is also important to be practical, especially in earlier stage ventures, as “there will always be a dissonance”.

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In conclusion…

‘Preparing for Exit’ requires organisation and planning, but what really stood out from the panel was the importance of the right people in place at all stages of the process. Throughout the event, the panellists highlighted the importance of having a strong exit team (CEO, CFO, NED and Chair), of maintaining a team motivation, of having trusted advisors acting on your behalf and utilising strong external consultancies. Thank you to our panellists for sharing their insights and to Jonathan for chairing the panel discussion.