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Finance calendar    Nov 19, 2015

The Art of Exiting: Optimizing Your Business Value

Why would you buy your company and what would you do with it? Taking the buyer's perspective when planning for an exit.

This is a topic that is applicable to all areas of selling, but it critically important when preparing your company for sale. So often, we look at the world through our lens—whether it be a technology focus or the market we currently serve. These perspectives may be interesting to an acquirer but they may not be the driving force that gets them to pay, or overpay, for your company. 

The truth of the matter is many CEOs are not sufficiently prepared to sell when it comes to exiting. When I say prepared, I’m stressing the fact that many CEOs are not able to confidently answer questions like:

  • Is the business currently profitable with a winning history and proven results?
  • Does your product fill that gap in the acquirer’s product suite that will increase sales not only of your product but of their other products as well? 
  • Will your business allow an acquirer to enter an adjacent market or sell to higher level buyers? 
  • Does your business have metrics to measure progress and, more importantly, how will it take corrective action when necessary?
  • How risky is your business and how sustainable is your business performance?

Just as the best sales reps try to learn everything they can about their prospects, the best CEOs and sell-side investment bankers try to learn as much as they can about their potential suitors and tailor their messaging.

Having this kind of insight and positioning can and will differentiate you in the acquirer’s mind. 


Why Would You Buy Your Company?

You must take the time to answer this question in order to improve the acquisition price and or get an acquirer realize the strategic value that you bring. Some of the people doing acquisitions in big companies are not very strategic or creative in their thinking – that’s not to say there aren’t strategic thinkers at those companies; you may not get to them. The people you speak to may be focused on your financials and nothing else, so it is very important to guide them to the strategic nature of your business and the impact that it can have on their business. 

Give them the story that they can take to the strategic thinkers. In other words, help them to do their job of selling your company back into their organization. 

Do You Know Your Worth?

The drivers of profit are: revenue, costs, and growth opportunities; which, are typically already key focus areas of CEOs. But there may be other drivers of business valuation.

Businesses value can be evaluated using various methods. For many businesses, selling price is derived by multiplying the business profit by a valuation multiple. But technology companies are often sold on growth rate, early leadership in a growth market, unique technology and scarcity of competing products, solutions that affect large markets, customer base—all of which boil down to risk and return. You must develop a system that shows that the upside you can deliver is worth a high value. 


That’s not to say there aren’t occasions where there is some hidden issue within an acquiring company that causes them to be interested in you. It can sometimes be tough to find these issues. Often an investment banker will have some insight that puts a company on the list of potential acquirers that you would never have thought of because they had seen this company exhibit some behavior previously that showed that they had some obscure motives for making an acquisition.   

Case in Point

A few years ago, one of our portfolio companies was approached by a very large public company. The acquirer made a decent offer based on our financials but it wasn’t great. The management team and I spent some time understanding all of the different divisions of the acquirer--who they sold to and why--and came up with a presentation deck that described what they should do with our company after acquisition. 

We went through division after division, different customer sets and different sales forces. With each, we showed the economic impact that could accrue to them.  At the end, they were protesting that we were using their numbers against them!  (Duh!)  Of course we were. 

But the result was that they raised their bid by 85%. The acquirer told me a year later that they overpaid for us, but they did admit that it was worth it because they did realize the gains that we had described. A classic win-win scenario. 

So ask yourself the question:  If you were the CEO of the acquiring company, why would you buy your company and what would you do with it?  If you can come up with a good answer, then they are worth pursuing. If not, perhaps time to look for another acquirer.