Corporate Insight: The next exit

The M&A markets fell off a cliff in 2008 when the global economy stalled.

01 Jan 2016
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As a result, many entrepreneurs will have delayed plans for a possible sale. The past two years have shown far more encouraging signs, despite occasional blips, and sale plans are now once again being dusted off.

For many entrepreneurs this will be the largest single transaction of their career, so it is important to get it right. Here are Howard Kennedy’s top exit tips to secure the best possible price.

Early starters. A sale process can take anything upwards of a year, but to achieve the best possible price for your business it is important to start preparing earlier – perhaps two or three years before you wish to sell. Use this time to get the business in the best possible shape to attract greater interest and better values.

Take advice. Seek advice from your lawyers, accountants and consider appointing a specialist M&A adviser at an early stage. They should be able to give you valuable insights into the suitability of your business for exit, valuation and the steps you should take to prepare for an exit with a maximised value.

The X-factor. There are certain factors that differentiate your business and can make it more attractive to potential buyers. You might have a clever piece of technology, perhaps be a leader in an attractive niche sector, or dominate a particular geography. Take some time to identify and use these 'x-factors' to help attract would-be buyers. This might include revisiting the public face of the business including its website and marketing materials or even a profile raising focussed PR campaign.

Management. A family-owned business can be heavily reliant on its founder or just one or two key individuals. Whilst this may have built a successful business, it may dissuade would-be buyers and a business independent from its founder may attract a greater premium. Therefore consider early on in the process the possibility of handing over greater responsibility to your management team and incentivise them through an appropriate reward structure.

No Financial Director? A buyer will want to see robust and regular financial information which demonstrates sound financial management. You will need to show actual sales against budget, that you manage your cash carefully, and that you have limited your exposure to bad debts. Sound financial management and reporting will give a buyer fewer reasons to back away from the deal or negotiate the price. If financial management isn’t your strong point, find help.

Motivation. What is the motivation behind selling the business? Are you looking to retire and have no further involvement? Would you be prepared to stay with the business for a time post-sale? Your relationship with the business might play a key role in who is prepared to buy the business and for how much, especially where growth potential is in some way dependent on you remaining in situ for a time.

How much? Be realistic about the value of your business. You may have sweated blood and tears for many years and attach an overly high valuation to the business. Seek professional help in establishing a valuation. There are many ways to measure value, but immediate past performance showing a period of sustained growth in turnover and profit will be key. If you can demonstrate credible growth potential this will enhance the attractiveness of the business and may positively affect valuation. Experienced advisers will seek to enhance value by stimulating competition amongst potential purchasers.

Keep your eye on the ball. Managing a sale process and keeping the business running at the same time can be challenging. Again, engaging suitably experienced professional advisers can ease the process.


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