Thinking of securing investment, an exit or MBO involving private equity? Tom Whittard, partner at Westbridge, gives three tips in an article in Corporate Financier magazine shown below. Contact us if you want to learn more about our advisory and corporate finance experience and support.
1 Deal Readiness
Entrepreneurial business owners have a tendency to invest in the tangible aspects of their business equipment, plant, premises, staff, whatever is needed to drive in support growth – rather than more strategic organisational and development factors, such as future-ready management systems, an HR function or strategic sales and marketing structures. under investment is also more often noticeable when it comes to financial and operational systems, processes and information.
The finance team, for example, might be great at bookkeeping or credit control, but all too often they are merely acting as a retrospective recording function, in line with the needs of the business at the time. As investors, we would like to see evidence that they are monitoring financial and operational trends that will inform future strategic development and ensure accurate forecasting. Without this degree of operational sophistication, it can be very difficult for us to get meaningful information out of the business at the start of the process, which, in turn, can slow or extinguish an interest to invest.
Our advice to business owners considering a deal will always be to prepare well by investing and highly competent people, systems and processes, and to develop the businesses information it will ultimately save time and money, and increase the likelihood of success.
2 Vendor and management alignment
Invariably, any entrepreneurial business owner considering a deal will be looking for a full or partial exit, after either having fully or partially relinquished the day-to-day management to a trusted team. Understandably, they will want to maximise the amount received for their precious baby, invariably the product of years of long hours, personal sacrifice and hard graft.
The purchasing team however will be keen to buy the business for the lowest value possible.
Tension and a clash of interests are inevitable and I’ve seen the unfortunate demise of more than their fair share of promising transactions. The appointment of a good corporate finance advisor, however, can help steer both parties through this most difficult of situations. Ideally, they would have the experience and understanding of the personalities involved, the type of deal, the sector the business operates in, the operations, competitive landscape and threats and opportunities that the company faces. The early selection and appointment of such an advisor will help to provide a fair and mutually acceptable evaluation that is palatable to all. That the corporate finance advisor is able to empathize with both sides is absolutely critical to ensuring that deal closes.
3 Deal Timing
It is rare to meet a business owner or management team who are realistically prepared for the amount of time and effort required to get a successful transaction completed. It is a common misconception that it will be easy to fit the additional demands on their time alongside that everyday responsibilities. This is often the direct result of the mismatch between the degree of preparation undertaken and the quality of information available to investors in the process. The natural result is the performance of the business suffers, and that the proposed pricing comes under pressure.
The value of a good corporate finance advisor, once again, cannot be overstated. They will be able to take much of the weight of the management’s shoulders, leaving them free to focus on the business. They will also act as an invaluable interpreter, translating investor-speak for all to understand.