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How can you maximise value on exiting your business?

Plan ahead and prepare your business for the exit process

Martyn Gregory, who heads up Deloitte’s South & Wales M&A team, explores how you can prepare your business for an exit to help maximise value.

The key to realising the true value of a business is to plan ahead and the sooner shareholders build an exit strategy into their business model, the smoother the transaction will be. My colleagues Geraint McGrath and Richard Bevan-Williams talked about this in an earlier blog where they gave advice on how best to approach early-stage planning.

But that’s just the start. Next on your agenda is preparing for the exit process, getting your ‘house in order’ so to speak, assessing your business to understand what’s important and which areas will drive value.

Standing up to investor scrutiny

There’s no denying that exiting a business is complex and by appointing advisers early in the exit process, you’ll be supported in ensuring your business strategy will stand up to investor scrutiny. Advisers such as my colleagues and I can also help you to consider and prepare critical areas of your operations, both finance and non-finance, that will not only enhance your value but also help you build a compelling equity story.

The record levels of M&A activity in 2021 highlighted the opportunity seen by dealmakers on both sides of transactions, but in 2022, I’d say the deal environment has been more volatile. Rising inflation, geopolitical risk and changeable financial conditions are adding further complications to the operating environment and navigating these requires careful judgement and consideration.

Whilst every business is different, there’s no doubt investors are looking for businesses that have a secure past, strong foundations and a clear path to sustainable growth. If you want to bring the right investors to the table, then this requires preparation across all areas of your business from HR to IT, and even so far as ensuring the right tax structures are in place.

Roadmap to success

At Deloitte, we’ve created a roadmap that’ll help shareholders, business owners and management teams navigate the many steps that will help them to realise value on their road to exit, as demonstrated below.

Preparing for exit

Once you’ve made the decision to sell, you’ll need to begin scoping out your business’s readiness for exit, and then preparing for it.

This gives you the opportunity to make sure all areas of your business will stand up to the scrutiny of due diligence. But where do you start?

Here are six areas for you to consider and some pointers as to what investors are looking for.

  1. A robust workforce. We are seeing an increasing trend where organisations are publicly reporting on staff wellbeing as part of their Environmental, Social and Governance (ESG) strategy. You could even say it’s becoming a key focus for investors during due diligence.

    Protecting and informing employees of the exit process is essential, as well as ensuring the management team responsible for delivering the exit is well established and has intimate knowledge of the business. As the race for talent continues, the ability of your business to attract and retain talent continues to be attractive to investors.

  2. Technology that is fit for purpose. Are you confident that your incumbent ICT systems are integrated fully and able to scale with the business in line with the growth strategy? Is your IT environment off the shelf or tailored, or are any major system changes underway that are mission critical?

    Experience shows that many integration budgets for acquired entities can be heavily weighted towards IT integration. That’s why a good IT infrastructure that is able to scale and fully integrate with existing systems is a real positive for investors.

  3. Finance function. Finance will always be the function most likely to be stretched by the due diligence process. The maturity of all functions is important as well as the ability for the management team to prove they are capable of running the business without, or with minimal shareholder impact, if shareholders are exiting.

    Note that management incentivisation is a key consideration for any acquirer. Additionally, what can also be really helpful is an awareness of key issues that may be raised in due diligence in advance of taking a business to market.

  4. Prepare, prepare, prepare. There are many nuances that can delay a transaction or halt it altogether. Operational strategies will need to flex and by reviewing all processes before embarking on the sales process, you will not only strengthen the proposition, but also make for a smoother transaction.

  5. ESG. There’s an increasing focus on how ESG can create value, steer reputation and culture which means it’s It is no longer a ‘nice-to-have’, but a necessity. With a noticeable upward tick in the shift towards M&A activity, key drivers appear to be linked to both reputational and financial considerations. Increased scrutiny applied by buyers means ESG is significantly higher up the transaction agenda than in the past.

    That’s why it’s critical for any business planning for a potential sale to carefully consider and present their ESG story in a coherent and robust manner from the outset. Having a clear ESG strategy is now mainstream and increasingly defines long-term shareholder value.

  6. Optimise tax structures. There are many important considerations to factor in when tax structuring, especially around the value of shares received on acquisition, which will be considered as part of the due diligence process. Formal tax valuations are expected from the outset by HMRC and an early review of the documentation prior to sale will prevent potential tax issues further down the line.

As you can see, there are many areas of your business that can drive exit value which we recommend you consider. There are many more aspects to each of these that my colleagues and I can help you navigate and get you on the right road to maximizing value for your business.

How we can help

Whether you are just starting to consider the potential future options for your business, have already made the decision to sell or are in the middle of an ongoing transaction, my colleagues and I would be happy to talk you through your options.

The South & Wales M&A team specliaises in transactions and provides corporate finance advice across all industries. We work with a wide range of clients on acquisitions and disposals, management buy-outs and management buy-ins, debt and equity fund raisings, long-term business planning and strategic projects.