Acquire, expand or merge to facilitate your exit strategy

Many business owners veiw a business exit or succession plan as a short-term plan to sell the business for the best possible price and whilst this may be possible ( and in fact many business brokers simply work on this model ) it is often not the best means of achieving the best return for the owners upon exit.

Like everything, if you are prepared to put in the extra work and effort and truly prepare the business for an exit strategy you will maximise the value and return to shareholders – with many of our clients this is a matter of identifying areas of risk, improving financial performance and then seeking to identify and attract a strategic buyer – sometimes a listed company, sometimes an offshore entity – this combination alone will maximise the value upon exit and generally far outperform a simple sale that most business owners would normally pursue.

We have had some considerable success with various clients by following an acquisition and expansion strategy as part of an overall exit plan – many small businesses, whilst successful and performing well and valuable in their own right, are simply not large enough and do not contain enough synergies for larger companies to acquire on any strategic valuation. Therefore, one part of our strategy may well be to acquire complementary businesses ( for example part of our vertical supply chain ) merge together businesses that supply a similar product or service the same client base with different product, or even operate very similarly in different geographic areas. This will increase the size, capacity and efficiency of both businesses and we managed effectively should ensure both sell for a higher figure than they would have done individually.

Obviously, this increases the timeframe and is a strong argument for a strategic succession plan to be in place long before the owner actually intends to exit the return on equity and increase in overall strategic valuation should be more than enough to compensate.

Many of the private equity firms and merchant banks that fund these kinds of transactions have minimum thresholds and simply to get your business to a size where these thresholds apply will improve firstly your chances of a successful sale or exit and secondly the valuation at the time.

A US based case study that models this is Advantage Sales and Marketing (ASM), a food brokerage that started as a $10M organization. After using this process and rolling up with 16 other similar organizations over four years, ASM sold a 75% interest to Allied Capital in a transaction valued at 5.5x EBITDA ($268m). Less two years later, ASM sold again for $1.05B or 9x EBITDA, resulting in a 7x ROI for Allied and the ASM member-owners. ASM sold again in December 2010 for $1.89B.

For more information on business succession planning, visit the business exit planning resource site.