Exit Strategies for Entrepreneurs

By Marc Fecher

Director

Devonshire Corporate Finance Limited

Agenda

• Brief Overview of market• Who are the buyers• Why would they buy • Timing• Tax• The Exit Puzzle• Process• Tips

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£10m - £50m £50m - £100m Over £100m

Entry EBIT Multiples Down Sharply After Increasing Over Many Years

UK Buy-outs/Buy-ins £10-100 million

Market Trends

What are my options?

Succession plan

Written exit plan

Unformulated exit plan

Identification of potential buyer

None

Don’t know

• Despite such high awareness of the meaning of “exit strategy”, only (30%) have any form of formal succession planning or written exit plan in place.

• However, one in four (24%) have an unformulated exit planned a further 6% have identified a potential buyer.

• The survey showed that 40% of those surveyed have not considered their exit route grooming or their exit strategy despite being aware of the term exit strategy.

7%

33%

6%

24%

9%

21%

NO second chances

Right first time!

• Proper Preparation and planning• The Grooming Process

“Failing to plan” is “Planning to Fail”

Single most import transaction in business life

What is a good Exit Strategy?

• “A plan, that matches owners aspirations with a range of purchasers and their needs”

• Unique to each business

Who are the buyers

Premium Buyer

• Strategic Buyer– Platform– Industry expertise– Leverage your assets– Aggressive growth strategy

Why would they buy

What are buyers and funders looking for

Balancing Act

Win Win

Vendors Aspirations

££

Purchasers Requirements

No pressure on sale – realised opportunityExpected commitment post saleEBIT on an upward curve

Characteristics:◦ Geography◦ Expertise◦ New market entrant◦ Growth

Negotiated valuation of up to £10m [30x historic 10.5x current run rate]

Case study-S Limited - Digital agency

The Best Time to Sell

What valuation should I expect?

• NAV minimum

• EBITDA multiple less Debt

• P/E multiple of maintainable earnings

Reduce Tax Impact

CGTCGT10% / 18%10% / 18%

The Pre Sale Process

• Objective = maximise value, meet owners emotional expectations and maintain confidentiality

• To improve both the multiple and the quality of the earnings

Maintainable Earnings (Post-Tax)

X Price Earnings Ratio

= The Business Value

• To attract a premium buyer

The Pre Sale Process

• To improve both the multiple and the quality of the earnings

Threats

Opportunities

Weakness

Strengths Enhance

Remove

Exploit

Manage

Exit Puzzle

Cash Buyers Market

Esteem USP

Employees

Results Timing

Warranties

Corporate Clean Up

1. Excess directors / family salaries, pensions

2. Benefits in kind

3. Family property

4. Cash drawings

5. Private Assets

1. The Management Team

2. Option scheme

3. Maintainable Earnings

4. Subsidiaries & Branches

5. Share buy backs

6. Ownership of intangible assets

7. Property

8. Cost base and Margins

• Identified Several Premium trade buyers (UK and International)

• Created an auction 3 offers

• Due Diligence Findings – Revenue recognition

• Offers Euro 7 – 17 million

• Handheld and project managed process and negotiations

• Timing

Case study - E Poland – Construction Project Management

Sales Process

Top 10 Mistakes

1. Process Triggered by adversity

2. No strategic plan

3. No idea of real worth

4. Too much own involvement

5. No DD on other side

6. “CASH” only

7. Weak secondary management team

8. Wrong partner/strategy

9. “Eye off the ball”

10. Timming

• Profitable - Turnover £10m• Excellent brand being eroded by Asian

competition • 5 European buyer offers• Sector downturn• Revised offers below an acceptable level

I Ltd – Sale

• Current management did not have the relevant MBO skills

• Restructure the business – £4M Property assets hive down– Find MBI candidate (Once in a life time

opportunity)– Assist with raising the debt funding to buy the

business

Plan B

Conclusion and next steps

• No second chances• Get it right first time• The best outcome arises when there is:-

– A well planned grooming and sales process

And Plan B

Why Use DCF

• Transaction Experience - 450 transactions

• Resources - Networking contacts

• Search capabilities and negotiation skills

• We get results!

Contact

Marc Fecher

Direct: 020 7566 3588Mobile: 07957 203559Email: mf@dcfl.co.ukwww.dcfl.co.uk/sale

Contact

Marc Fecher

Direct: 020 7566 3588Mobile: 07957 203559Email: mf@dcfl.co.ukwww.dcfl.co.uk/sale