AS HEAD of Corporate Finance at regional accountancy practice JWPCreers, I am often asked what exhibits a company or business should be able to show when looking to sell or achieve an exit for shareholders/investors.
Clearly it is important that those wishing to sell should understand their desirability and chances of a successful outcome at the start.
To give some insight and guidance into this, one or more of the following features are usually present in a company with above average prospects of sale:
• Innovative, leading-edge products or services which differentiate the business from its competitors and, ideally, also have ownership of intellectual property with barriers to entry from potential new entrants to the market.
• Track record of having or being about to generate significant profitability backed by a strong balance sheet and good asset backing. Often this will be accompanied by having achieved significant growth in recent years.
• Be, or about to become, significantly cash generative. Clearly growing companies engaged in significant research and development will find it difficult to generate significant cash balances but the business should be able to demonstrate the ability to do so in the foreseeable future.
• A strong team of senior and middle managers who are not reliant on the business owners for strategic direction and day-to-day operations.
• A strong system of financial and internal controls and the ability to produce timely and accurate management and commercial information.
Clearly it is difficult for a growing and developing business to demonstrate all of the features outlined above but in part and in combination they are the prime areas which a potential buyer/investor will focus upon.
As the economy comes out of recession and grows, so demand for acquisitions will follow and the price business owners can expect to achieve on exit will increase.
We are already seeing this with average price multiples of 4.5 times earnings before interest and tax in recent years increasing to over six latterly and well in excess of that in a business exhibiting some or all of the above characteristics, particularly when in a significant growth phase with a leading edge in terms of innovation and technology.
When thinking about realising wealth by sale or retiring, the message is simple – a common sense approach to the areas highlighted above will reap benefits in terms of achieving a successful sale and the maximum price.