Exit Preparation & Strategy

Improve outcomes

When preparing for either a public or private exit, opportunities to improve the outcome are often overlooked, including: executing rapid performance improvement opportunity assessments, preparing early for an exit, and maintaining management focus on operating performance during the transaction.

An outline detailing steps for rapid performance improvement assessments can be found here.

Management preparation should include:

• Define potential exit paths, including: strategic buyers, financial buyers and IPO

• Clearly define a compelling story for each exit alternative and each strategic buyer

• Each alternative and buyer should be assessed to understand the associated incremental value and growth story, in addition to understanding transactional risks (e.g. loss of confidentiality, increased audit costs)

• Recognize that the time required to execute each type of transaction differs – exit preparation often begins 1-2 years ahead of the event

• Assess operational readiness:

– Does the company have adequate internal (financial and information systems) controls?

– Does the board have an audit committee, corporate governance and investor relations policies?

– Does the company have a clear integrated performance improvement plan for each potential buyer?

– Does the company have a plan in place to provide adequate reporting to a private owner?

• The preferred exit strategy should not only have a clearly defined story and rationale, but significant financial data and a management team in place to back it up

Pursue the chosen exit strategy – while remaining open to alternatives.

Additional exit preparation

Additional steps can be taken to simplify and expedite the exit process, allowing management to maintain focus on the company’s performance:

• Update strategic plan and related market and industry diligence

• Develop high-level positive and negative synergy estimates for strategic buyers, including 100-day plans to execute

• Develop an employee communication plan, including: announcement of potential options, announcement of the transaction and clear communication during transition

• Assess risk of employee turnover, impact to company morale, and newly formed opportunities for buyer and seller staff

• Define parameters for stand alone financial statements, specifically focusing on the ability to generate data needed

• Review historical quality of earnings and compare to current financial statements

• Prepare historical budgets and forecasts-to-actual, define performance exceptions, and note changes made

• Begin to define assets, including IP rights, and related remaining useful lives

• Review potential complex financial reporting changes (e.g. materiality, segment reporting) with audit team

• Review material tax implications based on deal structure with tax advisor

• Review operating assets and assess under/over maintained equipment

• Assess ability to maintain existing benefit plans and resulting impact to staff

Proactively preparing for an exit allows management to maximize operational performance, stay focused on maintaining performance, and develop the optimal path to liquidity.