How to choose the right exit strategy for your business?

When to exit?

With the UK economy in a downturn, it’s perhaps not surprising that many business owners have concluded now is not the right time for them to undertake a transaction or realise value from their business. Whilst this may be the case for some, for quality businesses (regardless of sector) we continue to see strong transactional activity and funder appetite, in contrast to a purely macro-economic perspective.

The reasons for this are varied but most prominent is the liquidity in the market (both debt and equity) now, compared to previous downturns, that continues to drive and support mergers and acquisitions (M&A) activity.

Owners and management should not be put off exploring exit strategy and options based purely on the media’s broad assessment of the economic outlook and should instead focus on what is directly relevant to them; they may be surprised by what can be achieved, potentially much sooner than expected.

How to develop an exit strategy for your business

Options reviews

For many business owners and management, the day to day running of their business often overtakes the chance to take a step back and consider the future, both for them personally and for their business. Often a big decision – such as undertaking the sale of a business, a management buy-out (MBO), acquisition, employee ownership trust (EOT) or seeking third party funding – can seem an unknown or overwhelming and complex process. For some it may be the first time they have considered such a transaction and, understandably, they may be unsure of all it entails.

For those at an early stage in assessing what avenues are open to them, we undertake options reviews. These cover a range of transaction options (such as those mentioned above) and outline how the transaction might look, with the relative pros and cons. It helps set the direction of travel, and usually results in a particular type of transaction that is best suited to meeting both personal and business objectives.

Transaction workshops and feasibility reviews

As the shape of a potential transaction forms, it can still be difficult to picture what the transaction will mean or how it will be delivered. With the commitment involved, in both cost and time, having a good understanding of the likely outcome of a transaction is hugely valuable before taking such a crucial decision. If there is clarity on the destination, it helps with preparation and focuses the mind on what needs to be achieved by owners or management to get there.

We regularly run transaction workshops using case studies to demonstrate principles in specific transactions. This helps give a broad understanding of whether a particular option warrants further consideration.

For those more advanced in their thinking and who wish to take it a step further, we undertake feasibility studies tailored to them. We start with assessing the core objectives and aspirations of the preferred option in detail. From this, we will consider matters such as:

• The potential transaction structure (and associated tax planning)
• Company valuation
• Funding potential (including initial conversations with funders)
• Reviewing key matters that could be deal blockers

It is an opportunity to identify issues and resolve them before a transactional process is under way. Owners and management who are equipped with this knowledge can then make more informed decisions and take steps to improve the outcome.