EXIT STRATEGIES: Where a financial adviser can help

The type of advice and help a professional adviser can provide includes assistance in these areas:

Valuation

If the firm has prepared a valuation of the business and projected business opportunities for potential acquirers it will contribute considerably to discussions with the potential buyer.

The adviser can review financial projections, provide conventional valuations and brief the entrepreneur on how best to present his case.

Understanding how an acquirer undertakes a valuation will ensure that the firm has prepared the proper information, presents it properly and is able to validate underlying assumptions and values.

Preparing an information memorandum

The information memorandum (IM) is a document that most firms use to solicit interest in their business.

It describes the business, sets out historical and projected financials and provides background information on the industry, the competitors and the acquisition opportunity to allow a potential buyer to decide if he wishes to proceed to a more detailed examination.

It is the foundation document that will be used by the potential buyer to evaluate the acquisition.

It is important that the IM be prepared thoroughly, be properly explained and contains information needed by the potential buyer to undertake initial due diligence.

The adviser can prepare the IM to ensure that it is readable, persuasive and provides appropriate level/type of information.

Reviewing financial information

Financial information needs to be prepared according to generally accepted accounting principles and should be presented in a conventional format that allows easy analysis.

Your adviser can ensure that statements are prepared correctly and that accompanying data fully supports a detailed investigation.

That information is normally reviewed by your adviser to ensure that financial information is presented on a consistent basis from year to year and that extraordinary or abnormal items are fully explored.

Helping with introductions and referrals

Well established accounting firms and investment banks regularly participate in transactions involving buyers and are therefore in a good position to know most local large corporations on a personal basis and by reputation.

If they believe you have a good business proposition they can help to shortlist potential buyers to be approached and they can help with introductions or referrals.

They may also be able to assist with the search for prior acquisitions and with the uncovering of news items which relate to them as well as assisting you to contact prior sellers so you can gain an independent view of the potential buyer.

Many professional firms have national and international offices together with affiliate networks that can be used to uncover other possible buyers and to generate introductions.

Having the appropriate potential buyers in the final bid process can make a huge difference to the ultimate sale price.

Reviewing purchase terms and conditions

Purchase agreements are often set out in a conventional format but the vendor is not normally in a position to know what terms would be reasonable for their business.

The adviser should be able to recommend where terms should be renegotiated but always obtain proper legal advice on contract terms.

Assisting in negotiations

The firm which is represented by a well established and respected adviser is likely to be better prepared for negotiations.

At the same time the buyer knows that the terms are going to be reviewed by a knowledgeable party, which should result in more productive discussions, with the result likely to be better for the firm.

The buyer may prefer to deal with a business represented by a professional adviser because they know the entrepreneur will not need to be educated about conventional terms and conditions or warranties and representations required under a normal deal.

Advice on preparation

Preparation for an acquisition is much more than preparing a business plan. The adviser reviews the likely buyer’s investment criteria and investment process in advance with the management team to ensure that the vendor has prepared itself for negotiations and the due diligence processes.

Due diligence

Due diligence will be carried out by the buyer as part of their initial evaluation of the acquisition opportunity.

That is mostly a product/market evaluation to see if the merged business can support the opportunity claims of the firm.

After the business terms of the acquisition are agreed the buyer will carry out an extensive review to further ensure it has a thorough understanding of the business and the management and that it has uncovered any data discrepancies and investment risks.

Your adviser can undertake a trial due diligence process to ensure that the firm is fully prepared and to help to correct any deficiencies.

Advice on pensions, option schemes and remuneration

Once the buyer is involved the firm will have little opportunity to change the remuneration and benefits of its staff.

A professional accounting firm can review those before an approach is made to a buyer to ensure that remuneration and benefits are fair and reasonable, and that they provide the most positive basis for the planned sale.

Tax advice

Few firms are structured from the outset to be optimised for a sale.

Over time the tax regime will most likely have changed, especially with regard to retirement strategies, trusts, capital gains and options.

The corporate structure of the business may not be suitable for an outright sale and may not be optimised if there is an earn-out portion.

A professional accounting firm can review business processes for compliance, tax collection and reporting.

At the same time personal tax planning for major shareholders should be undertaken to establish the appropriate basis for the planned sale. That will include the best format for the sale, for instance sale of shares or sale of assets.

Exit strategy assistance

From their knowledge of prior acquisitions your adviser can help to define business potential, strategic value, identify integration issues and/or show how the firm can best position itself for a sale.

Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia. A series of free eBooks for entrepreneurs and angel and VC investors can be found at his site here.