To get the best value for a small private company on exit there are many factors that can play a part in getting the best price or deal. Here’s my list.
- An existing close relationship with the acquirer’s management where they know you and your team and the value you would bring and the ease of integration (i.e. low risk and high speed)
- At lease one or more rival bidders who know each other.
- Try and get into a position where you are ‘in the way’ of those in a roll-up strategy that want to bulk up fast. High market profile – already on the radar of potential buyers for some while. High profile so that its noticed and high profile in terms of being company that’s obviously written or spoken about as a being successful and ‘one to watch’.
- Strategic advantage for buyer in a time sensitive sellers market – this could be IP, market share, brand or execution is a space in the market they are weaker or are trying to dominate.
- Unique and sustainable market positioning in a hot sector – whether that’s expressed in product/service leadership or a dominant or ‘top 3 players’ market share.
- Generating cash – doing so from a good EBIT margin % at a sufficient level to be entirely self funding for future growth from working capital for capex enhancements to product/service development.
- Strong and sustained growth – such that the acquirer can count on continued shareholder value growth and so that the NPV of that growth can be expressed in present sale price.
- Simple story – a core product/service line that is performing well with no clutter such as significant (untested) new product lines draining EBITDA or expensive forays into new markets including new geographic territories.
- A revenue model that indicates that the company will become more profitable as it grows – so that revenues and the gross margins arising will outgrow the increase in cost of sales and fixed costs
- Competent, successful and stable senior management team – plus a plan for succession in each operational discipline.
Written by JGB & Julian Costley