Software Company

Out – Exit strategy in place for future sale

The Company is a profitable and well business with a turnover in excess of £20m making profit before tax in excess of 30%. It had significant excess cash holdings above its working capital requirements. It is run by a team of owner managers who founded the business. The majority of the board wanted to look at the possibility of selling the business. It was decided to test the market to determine whether it was a sensible time for the owner managers to realise their value.
We helped put the information memorandum together, advised on which broker to use and the terms upon which the broker was appointed. We also identified potential purchasers as likely bidders.
Following the exercise we analysed the outcome. It was decided the potential value realisable would not equate to the value the board were able to extract from the business. It was agreed by all Directors’ that the sale process should be parked. It was also clear that excess cash would add little value to an acquirer of the business and as a result this was distributed to shareholders.
The exercise resulted in better succession planning being put in place for the future and highlighted key strategic areas to build on which would enhance the future value of the business.
The board are now united and have set some clear objectives to achieve regarding overseas operations and set clear objectives in place to reduce the need of an “earn out” period being required when the business is sold in the future.

Findings

* Testing the market added value and united the Board
* The process of preparing for exit added value to the business
* Succession planning key to minimise earn out requirements

Construction Industry

Up – Reporting improved, KPIs and forecasting put in place

This was a complex assignment for a business that had a turnover in excess of £10m. The business had grown rapidly. It was necessary to improve management information, internal controls and communication between divisions. The key focus was the Board pack. In addition to the standard reporting requirements it was necessary to implement a project reporting structure throughout the business. This reliable and meaningful information was presented to the board. Over three months the board pack improved significantly and sensible work in progress values and key performance indicators were put in place. The business had also outgrown its accounting system and plans are in place to replace it. In the meantime additional controls and reports have been put in place to ensure data integrity is maintained until the current account package is in replaced.
The construction company supplied services to investment companies. The investment companies are based off shore and purchase land to develop residential properties for the high net worth market. Each investment company has its own exit strategy built in and uses a private equity model leveraging off bank debt. Typical exit is around two to three years.
The construction company is building a quality brand in the market place. It now has good business practices and reporting. Currently there are no specific plans to exit and this will be reviewed when the market changes.

Findings

* A quality management or board pack is essential for all businesses
* A tenacious approach to the finance function is required
* Effective communication aids better decision making

Publishing Company

On – Perfecting the On balance

This involved the purchase of an owner managed niche publishing company with a turnover of approximately £1m. The company had surplus cash and the sale was secured using a whitewash procedure.
The owner was the managing director who had a number of roles in the business including editor. He worked “in” the business and wanted to retire. He was involved in all aspects of the business and had not delegated responsibility to other staff. He had not perfected the “On” balance which was reflected in the price.
When due diligence was undertaken for the acquirer a list of action points were produced at the time, categorised as high, medium and low priority. The key objective was to ensure the business could operate as soon as possible independently of the owner manager selling the business. He was retained for a period on a consultancy contract whilst sensible accountability and responsibility was allocated across the management team that remained with the business.
The business successfully operated without the previous owner manager and was subsequently sold as part of a deal which amalgamated it with a larger business at a significant uplift to the price that had been paid.

Findings

* Plan the exit strategy as early as possible
* Achieve the “On” balance before exit to maximise value
* Use the Due diligence process to plan post sale activities

Manufacturing company

On – Managing Director puts in too many hours.

This was a 100% owner managed business that had built up a successful manufacturing business selling bespoke products at the top end of the market. It employed 60 staff and the owner was near retirement and had not planned to exit the business.
The owner worked too many hours and was actively working in the business. There was a lack of accountability and responsibility. The owner needed to sell the business for a number of reasons. The business was supported by an over draft and had struggled to make profits. It had a valuable brand in its market place and had an impressive client base.
This was an intensive assignment that was carried out over six months to prepare the business for sale. Robust systems were put in place that included a refined Accounts package, Web site (Content Management System), and Customer database (CRM system). The business needed management information processes to be improved.
In this instance the business could not be sold without the owner manager agreeing to an earn-out arrangement with the business under new ownership. We handled the entire sale process, working with the lawyers to secure a trade sale and advised on all commercial issues regarding the sale terms and the service agreement terms for the managing director who remained with the business. The managing director was involved in so many aspects of the business that he could not have handled the sale process but we kept him updated with all activities and a trade sale was secured.

Findings

* Too many hours worked means the “On” balance is not achieved
* Perfect the On balance through, accountability
* Never underestimate the time involved in selling a business

Recruitment Company

Out - Shareholder exit secured through share buy back

This was an owner managed business that had gown rapidly. The business had a cash surplus and one of the shareholders wished to exit the business as he no longer wished to have an active roll in the business.
It was complicated as there was no shareholder agreement, the directors did not have service contracts and the company was a public limited company.

Working with solicitors we arranged a share buy back and negotiated terms that were agreeable to all parties. However had agreements been in place at the outset when the company was formed a lot of costs could have been saved and a resolution reached earlier.

Findings

* Put a shareholder agreement in place
* Ensure Directors have service contracts
* A public limited company status brings its own complexities

Human Resources Company

Up, On and Out – Strategy put in place

This was a company which had lost direction. It was trying to do too many things to too many sectors.
This was a brief assignment which involved re-focussing the business. A review of its products and services where undertaken. It was agreed to focus on a particular sector and supply certain products and services for that sector.
The managing director would work “In” the business and effectively template all the products and services for that sector. She would then delegate to other staff and move to another sector.
The business was effectively run as a franchise business internally. This has lead to career paths for staff, clear accountability and responsibility and succession planning. The founding managing director effectively works “In” the business to get a division started then works “On” that unit was it is up and running and moves to start another unit.
An exit strategy was put in place for the business at the outset and it is currently extending its template offerings to other niche sectors. It is showing good progress.

Findings

* Consider an exit strategy when forming a business
* Identify potential purchasers
* Work “In” and “On” as a business grows

Conservatory Company

Out –Trade sale secured

The managing director was busy running the company and needed someone to handle the entire sale process whilst he focussed on running the business. A trade sale was organised and he was happy to work with the new owners.
The assignment involved negotiating all commercial terms. Agreeing heads of terms. Handling the due diligence process, ensuring information was supplied correctly and on a timely basis. Negotiation all contractual terms and liaising with the company solicitors as needed.
It is key that good commercial solicitors act for both sides and that both parties avoid unnecessary point scoring. In one deal we handled everything was going well until the two partners on either side went on holiday. Those that took over started to point score and negotiations stalled until the original partners returned when all issues were dealt with within a few hours. This highlighted the importance of having good legal sensible advisors for both purchaser and seller.
The Managing director was fully informed of everything that was going on and left to run the business. The company did not have a lot of cash and the sale had to be competed in a very quick time frame. It was successfully sold.

Findings

* Heads of terms – Should cover all key points
* Due diligence process is very time consuming
* Good advisors are vital for both sides

Bakery Business

On and Out – A franchise approach adopted for the business.

This business had three bakeries which were supplied from a separate factory owned by the same company that produced the majority of the patisseries sold. The management reporting pack for each retail unit was of a good quality and the “Up” could be reasonably measured. Additional reporting was introduced to report on wastage as this effectively linked the complete cycle from order to sale or wasted and just put this reporting line in as a key KPI improved efficiency. It is a standard process in a business to try and spot where leakage can occur and report a KPI on it.
We devised a standard pack which could then be used to build a franchise model. This is used internally and each manager of each bakery has full profit and loss responsibility and accountability.
This approach has improved controls and franchises ventures can be offered to facilitate growth increasing market share. Each team a franchise is secured it will add significant shareholder value which in turn makes the company more marketable.

Findings

* A franchise approach helps exit
* A franchise approach perfects the “on” balance
* A franchise approach aids accountability and responsibility

Restaurant business

Out – Exit and full payout for shareholders

This business had an unprofitable restaurant which had over expanded. It was unable to attract sufficient customers to cover its overheads. The freehold was owned by the company and consisted of a restaurant, an office above and a separate flat above the office.
It was clear that without some form of innovation the sale of the restaurant would not be sufficient to repay shareholders their capital and it was going to be difficult to secure a sale as it was not profitable.
Part of the restaurant was converted to a profitable bakery which was sold as a separate trading unit. The remaining restaurant part was closed down and sold separately as retail space. The office was converted to a flat and the existing flat was upgraded and both were sold as upmarket residential units.
The owner manager was also successful in repaying all family loans. Shareholders received all their monies back and the various assets were sold in phases to ensure the return to shareholders was tax efficient.

Findings

* It may be beneficial to exit a business in instalments
* Advance tax planning advisable
* Innovative ways of exit can increase overall exit value