From the upcoming book: “What Colour is Your Exit?”
In Today’s Environment selling a Business is Easy.
But the art of M&A is Still Difficult to master and perform it strategically.
However it’s important to note that founders, boards, executives, and owners who plan to sell their shares or the whole of their mid-market companies right now that the “Going-is-Good” or in the next few years; things are looking up.
Signs of a strengthening economy are unleashing pent-up demand as large, healthy companies with stockpiles of cash are getting off the sidelines to make strategic acquisitions.
Between Google, Facebook, Microsoft, Yahoo, and AliBaba, thousands of companies are bought, sold, acquired, merged, and smurfed-up, each and every year…
On the flip side, more and more good startup companies are on the market, and the “Smart Money” is chasing strong, seasoned companies, that look like a good fit, and are polished enough, to know how to prepare and present themselves as a value add to the Tech Giants out there.
What does it take in today’s environment to become willful prey to the Tech Giants?
How can you ensure that all the time, energy, intelligence, money, and talent, you’ve invested in your company are reflected positively in its value when you try to attract the attention of the T-Rex to come and eat you up?
Is it possible to command a premium price in such a transaction?
And you thought breakfast for Tyrannosaurus was vegetables…
We help you sell at a premium, because our M&A consulting services gives us deep and wide perspective on successful deals from both sides of the table.
And because it has been our experience that most sellers profit from making thoughtful investments to maximize their value and are behaving like a Big company with big company processes to fit well within a larger Tech Enterprise.
The savvy company owners and sellers of the successful StartUps know this principle and are always doing things to set their business apart from the crowds. They showcase their strengths, attract competitive bids, and gain greater ultimate value in the process — by understanding the laws of scarcity and the point of diminishing returns for the T-Rex out there looking at them.
But getting top dollar for your business means knowing what to invest in; the last thing you want to do is waste precious resources on initiatives of no material value to a prospective buyer.
For instance, if all a buyer will care about is acquiring your dazzling IP, investing in a new ERP system would be a waste of money. Understandably, many middle-market businesses have had their heads down for so long that they don’t know what they’re really worth in the eyes of today’s buyers, or what they can do to drive value now.
Assess your value drivers as perceived by potential buyers: What do you do, and what do buyers value? To begin, you may want to draw on your professional network to ask companies what matters; reach out to business development directors and M&A leads whenever you can. Trade association meetings can also provide a forum for large public companies to discuss the businesses they’re acquiring, the multiples they’re paying—and why. Then consider the following ways you may be able to elevate your value in the eyes of a qualified buyer.
We find that companies can often increase their market value through initiatives in one or more of the following areas, but above all else we need to be involved early on to accommodate a successful merger & acquisition facility if not an outright sale:
Here are the top Six ways of Improving the Value of Your Company and Prepping for a Sale:
1. Reinforce or create a competitive advantage. Consider what you can do to raise the profile and value of your
company’s sweet spot. For example, we work with many clients that have built their companies and competitive
advantage on valuable IP. During the sale process, their “secret sauce” can be at risk if it’s not adequately protected.
We recommend a tight strategy to protect your core assets and capture your IP in the value of your business.
Look for ways to quantify and add value without spending capital. For instance, you might ask customers with seasoned contracts to sign new three-year contracts a bit early to extend, and thus increase the value of, those on-the-books agreements.
2. Strengthen your revenue streams. Naturally, buyers are attracted to a strong sales pipeline. Some companies increase their value by further “professionalizing” their sales pipeline, ensuring potential buyers that a sophisticated, strategic sales and marketing function is in place, backed by robust and up to date information systems.
3. Make your business attractive to more than one buyer. The value of your business is dictated by the amount of competition for your assets. One of the greatest risks is positioning your company to be bought by just one buyer. Focus on doing what you can to make yourself attractive to multiple prospective buyers. Sometimes an external perspective can help you see prospects that you hadn’t considered before. It may pay to engage an investment banker to reach out to prospective buyers in a research effort before committing to sell your business.
4. Optimize your cash flow. Review the state of your accounts receivable and payable. Clear up credit policies.
Consider creating customer incentives such as AR discounts for quicker payment. Look at expense capitalization; if your business has operated out of a checkbook to expense costs, consider amortizing costs over longer periods. Review your compensation strategies; many closely held businesses have idiosyncrasies that affect the perceived value of the company. You may need to do a pro forma of what the business would look like under new ownership in order to communicate the opportunities for new, free cash flow.
5. Demonstrate business maturity. To be bought by a public company, you need to look, act and smell like one.
Crisp information, accounting and compliance systems go a long way to help you sail through the scrutiny of the buttoned down types who will be evaluating your company. Now’s the time to clear up any murky areas—liabilities, lawsuits, or contingents—that might raise eyebrows and questions.
To avoid risk-related discounts in value, think in terms of risk mitigation—securing key vendor relationships, addressing any supply chain back-ups, cleaning up any contractual issues and act on improvements that make your company a lean, transparent, smooth-running operation.
6. Treat people right. Your employees helped build the value of your business. In all intelligent companies, they’re viewed as the most significant asset. Human Capital is the dearest form of capital asset there is. Remember that. And please remember that all of them will be affected by the sale and transition of the company.
Any and all M&A creates personal insecurities that affect the business output.
So how do you create security for those vital people that you need to run the business effectively and that you want to keep and also how to be fair to those who will leave?
And people will leave because when the Googlers take over the company, and they start telling everybody that this is “How Google Does Things” … there are a lot of talented people who will run for the exits. We provide a parachute for them…
The human side of a business sale is a huge strategic issue that can make or break the deal; as such, timing is key, and it’s essential to plan in advance. Solid transition management and communication plans should be part of your playbook, including when and how to share the news and make a transition with respect for everyone involved.
The Bottom Line is that to execute a successful M & A transaction and ensure a successful sale that captures the full value of your business, is a process worth starting from the beginning of the company as far as Early Stage StartUps go. Thinking of Exits is job number One and for later stage and Mid-Market companies, you should start executing the necessary moves, at least a year before your company announces plans to sell.
We do this because it takes dedicated time, bandwidth and leadership to do it right.
There is great value in managing the process proactively, and setting aside the resources you’ll
need to effectively sell and transition your company for the future through M & A.
This process is not a phase, but an integral part of the business, and must start well before you begin courting prospective buyers, or counting your crows.
Seattle Angels is an investment banking consulting firm, within an Early Stage Investment Circle. We manage the resources necessary and bring the buyers to the table. But we mainly advice management about the transition well ahead of the sale and we crowdsource our services throughout the community of Angel Investors, and thus seek ways to capitalize on this work throughout the process by leveraging knowledge and equity.
We help our clients develop strategic insights and translate that into impact investing for profitability and betterment of the balance sheet.
Do You wanna sell your StartUp?
Come along and be counted…
Become one of us by joining our monthly meetings, as our clients and friends, do when they look to us for industry and functional expertise combined with our ability to execute sales quickly and profitably.
By combining industry expertise with M&A execution skills, we help our clients develop corporate growth and exit strategies.
We help them on both sides of the table to conduct effective diligence processes, and when these processes give the Green-Light to proceed — we prepare for critical close.
We assist with the next, day one activities, and we develop a FUTURE PLAN.
We also implement a “first 100 days” simple future plan and draw-up the post-merger integration roadmap.
In short we do it all in a one stop shop.