A New Era of Entrepreneurship – Building Exit-Ready Businesses

For decades, acquisitions of private companies were seen to be a failure most of the time, and that was from the acquirer’s perspective. Research cited in HBR and most popular business magazines claimed 70% to 90% failure rates. It was a graveyard of dreams. But over time as research studies were published (see footer) about the cause of failures, acquirers started to take notice. Post-mortems after deals became more popular, care and attention was given to planning, validating and executing integration strategies using Integration Management Offices (IMOs). Buyers developed processes using smart advice like The Acquirer’s Playbook. The landscape now observes acquirers carefully considering the strategic rationale of the deal, studying targets operationally and stress testing their post-acquisition integration plan. More have became practised, serial buyers with a blueprint.

The next big innovation in Entrepreneurship that is about to happen is a Reimagining of the Exit Process. Anecdotally most entrepreneurs seem unhappy with their exit, many fail to exit and the research from AES Nation indicates around 53% are unhappy with the outcome. Pressure has been building to change this 100 year old exit process which is in summary, build a business for 10 to 40 years that makes money, appoint an investment bank and sell it! Well out of 6.2 million US companies that run a payroll (US Census Data) only around 8000 exit each year for $10m or more. Obviously not all owners are trying to sell, but those that do face stiff odds to get what they deserve. Exiting at a premium price is rare.

If we stand back and consider the psychology of the acquirer for a second, we will begin to understand the problem with the existing exit process. Acquirers don’t want to buy a problem There are characteristics that they cherish. One sentence underpins the valuation of a private company. Sellers aspire to price and buyers perceive value. Therefore there is an unreasonably attractive opportunity for sellers to build the perception of value in the eyes of acquirers. Building businesses that are Exit-Ready is the new game, even if you never sell it.

What does Exit-Ready look like? What Do Buyers Cherish?

Business is not dependent on the owner
Brand is seen as a leader in the industry
Margins are in the top 10% of your industry
EBITDA > $2m
Staff morale is high
You’ve created a barrier to competitors copying you
Impressive growth of Revenue & Profits over the last 3 years
You have new innovative products or services winning business
Repeatable processes are documented in playbooks
Second tier management are some of the best in the industry
Technology infrastructure is fit for purpose
No material litigation issues

The new Exit Process starts with a Buyers Assessment Audit. How does your company stack up? The audit uncovers Value Leakage and creates priorities around Value Creation.

Not all leakages are born equal. Some like succession planning can take years. Others like creating robust process around sales, marketing and finance can take 9 months.

By looking through the “Lens of a Buyer” and by understanding how buyers perceive value, private company owners have an opportunity to build a stronger, safer more saleable business over time. This becomes the new Report Card. This approach has the potential to get the majority entrepreneurs what they deserve. But value creation takes time and focus on the right stuff.

The new Exit Process will contain a Value Creation step that builds exit-ready businesses.

The Portfolio Partnership in collaboration with The Grist are Building Exit-Ready Businesses using our proprietary tools and decades of operator experience and over 40 successful exits.

Reach out for an exploratory Zoom call.

Ian@TPPboston.com

PS CEO Clubs – this makes a great presentation to members.

Footnote on Research: