Business Exit Options Diagnostic

Federation Capital’s principals have many years’ experience of helping clients to sell businesses, acquire businesses, list on the ASX and raise capital from strategic investors. We live and breathe transactions and are constantly exposed to what’s going on in that space.

 

We regularly encounter business owners who intend to sell their business within the next few years. However we often find they have very little idea of how to go about it, what their options really are and what they might be doing to improve their businesses in the meantime to increase its value and the likelihood of a successful sale.

 

Using our experience and insight, we are able to look backwards from a future possible deal to your current situation. We understand how buyers will view your business, what the issues are that will affect its saleability (some of which you could be addressing now), its likely value and what your realistic options for an exit are.

 

In addressing these needs, we’ve put together our Business Exit Options Diagnostic to assist business owners in this situation. It involves two stages:

STAGE ONE – Identifying and Prioritising Your Exit Objectives

In understanding your objectives, we will discuss and prioritise such issues as: 

      • What is your reason(s) for considering an exit of your business?
      • What is your timeframe for an exit – both start and finish?
      • What are your price expectations and why?
      • Are you willing to consider a partial exit or one that is structured over time?
      • Are you willing to work in the business after exit – if so, on what terms?

-    Part time or full time

-    Management or consultant

-    For how long

      • Are there any natural buyers and/or any parties you wouldn’t sell to? Have you had any previous approaches?
      • Do you have any issues or concerns about staff, customers or suppliers after your exit?

In this initial stage we will learn about your business and assist you to determine what your exit objectives actually are, ranking them by importance to you.

 

STAGE TWO – Business Issues, Exit Options and Pricing

We will provide our views and advice in three key areas to assist you to prepare for a successful exit: 

 

1. Business and Structural Issues

What business & structural issues have we identified that are relevant to your exit? For example: 

      • Dependence on key person(s)

-    Is the business dependent on the owner?

-    Are there other key management or staff?

      • Earnings history and future prospects
      • Existence and/or ownership of IP

-    Does identifiable proprietary technology exist and, if so, is it patented?

-    Does the business have know-how or any other intellectual property?

-    To what extent are these assets documented and protected?

      • Aside from any IP, what are the barriers to entry
      • Any key supply, distribution and/or licence agreements and, if so, are they documented
      • Appropriate internal processes and procedures

-    Financial reporting (management accounts, annual accounts, audited statements)

-    Budgeting / forecasting

Issues such as these often have a significant impact on the saleability of a business and the result that can realistically be achieved. In many cases they can be resolved or at least improved; however meaningful improvement rarely happens overnight.

 

We will provide our views on whether, and to what extent, such issues are relevant to your business and how they may affect an exit. We will also provide, where possible, recommendations on how those issues might be addressed.

 

2. Exit Options

There is a variety of options open to business owners wishing to exit their business. These include: 

          • Sale of the business to a trade (strategic) buyer
          • Sale to management
          • Sale to a family member(s)
          • Sale to investors (in whole or part)
          • An Initial Public Offering (IPO)

 We will provide our views as to your realistic exit options and the relative merits of each. 

  

3. Indicative Price Range and Transaction Structure

 

The best way to maximise the outcome from your exit is to properly prepare the business for sale and to undertake a professional sale process that maximises competition amongst potential buyers.

 

“Price” is often calculated as a multiple of normalised earnings (past and/or future), the multiple will influenced by the factors identified in 2. above but also by external factors such as: 

      • The industry the business is in; is it high value, high growth (e.g. internet, technology) or in decline (e.g. manufacturing)?
      • What is the economic, structural and competitive environment within your industry and the economy more broadly?
      • Are there motivated buyers in your industry interested in acquiring to grow their businesses?

Many private business sales are “structured” rather than the full consideration being paid at completion; hence deal structure is just as important as headline price. Your willingness (or not) to accept risk for potential upside after the deal will often have a substantial impact on the price offered by buyers.

 

We will provide an indication of the price range within which we think your business might sell (rather than a formal valuation) and outline possible sale structures which buyers are likely to propose.

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