We undertake exit analyses in several different circumstances, including:
Financial investors buy businesses with the aim of re-selling at some future point. Our work here essentially aims to provide comfort that it will be possible to resell. (There are quite a few chemical sector, private equity-owned assets that have been in PE portfolios many years longer than desirable).
A common assumption (encouraged by the vendors) is that there will be trade buyers to whom the company will be attractive – but this begs the question “so why should they buy it in 3, 4 or 5 years, and at a higher price, when they are not interested now?” Of course this depends at least in part on how the business is re-shaped in the 3 or 4 years.
Therefore the work we undertake is not just to identify who might be interested in acquiring the business in a few years’ time, but also why – and consequently what the implications are for the company’s strategy in the intervening years.
The question we are asked here, which is really an extension of the above, is “We know who is likely to be interested – but what moves will most enhance exit value?” In effect, we review business strategy from an exit-focused perspective.
The basic fact (and there are exceptions) is that it is easier to sell a simple, single-strand business than a more complex one. And there are instances where management has commercially sound development plans, but these will add a layer of complexity to the business which may actually reduce its attractiveness to potential buyers.
Financial investors seek to maximise the value added to a business in a short period of time. However value is dictated partly by EBITDA and other financial measures of past and current performance, and partly by how attractive the business is perceived to be by the prospective buyer.
When a significant company or business units is to be sold, corporate financiers are appointed to handle the sale and, usually, to arrange an auction.
However with smaller operations, possibly units being sold to ‘tidy up’ a larger business pending its sale, or possibly minority stakes, an open auction may not be desirable. We are sometimes engaged in such circumstances to identify potential buyers, then assess which ones stand to derive the greatest value by buying the business. The purpose is to enable a targeted approach to the ‘best’ prospective buyer. Occasionally, we also make the initial approaches to potential buyers to maintain anonymity.