If you want an exit later, deal with critical issues now.
Guest author Bob Barker is managing partner of 20/20 Outlook LLC. He acts as a trusted CEO advisor, helping convert a clear vision into executable strategies that accelerate growth.
Most CEOs expect to sell out at some point. A classic mistake is waiting too long to start preparing. An acquisition is an inexact process, and it’s impossible to predict and control its timing. Astute CEOs focus on acquisition value well before engaging a banker or being approached by an acquirer.
Addressing 6 important issues this year can accelerate your path to an exit:
- Show credible numbers
- Acknowledge the intangibles
- Recover from business entropy
- Increase your multiple
- Understand the jungle
- Hang with winners
Show credible numbers
The importance of good financials is often underestimated. It’s amazing how many talented CEOs of smaller companies don’t have audited (or even reviewed) books because of the perceived high cost. In fact, a small reputable firm can do a highly satisfactory job without excessive expense.
With two years of audited numbers, potential acquirers get a rapid and reliable financial picture of the business, a key step in accelerating their interest. This immediate positive step doesn’t require deep thought – just do it.
Acknowledge the intangibles
Personal interests create the context for decision-making in every company. The owner of a small family business and the CEO of a large public company are similarly driven by underlying personal preferences. Awareness of these intangible principles can save time when decisions arise. For example:
Goals: Secure a good living for a long time? Maximize shareholder returns? Both?
Focus: Outward (e.g., gain recognition as a thought leader) or inward (e.g., achieve personal goals, accomplishing God’s plan for my life)?
Impact: Change how business gets done? Introduce efficiencies? Change people’s daily lives for the better?
Recover from business entropy
“Much has been written about acquiring companies’ failure to realize the value they envisioned for their acquisitions and the why’s [sic]: a lack of proper due diligence, cultural mismatch, lack of integration planning, unforeseen market factors, etc. However, of all the possible reasons for failure, M&A experts put the lack of a clear vision at the top of the list.”
Source: “Creating and Executing a Winning M&A Strategy”
Merrill Data Site and The M&A Advisor, October 2013
What’s true for acquirers is equally true for their targets. Target CEOs often spend time thinking about growing valuation through the lens of the company’s financial statements. While it’s tempting to believe it’s possible, watching the scoreboard doesn’t change the score.
After starting out with an early understanding of purpose and positioning, most companies eventually succumb to “business entropy” (i.e., unclear vision that causes poor execution). The most common force impacting clarity of vision is quarterly revenue pressure. Needing to meet financial goals lures management into pursuing an opportunity that’s not a good fit. After “winning” that transaction, its implementation requires excessive work to fill the gap between the customer’s requirements and the vendor’s capabilities. The result is decreased profit.
Continuing to accept similar transactions over time erodes the company’s identity, with two predictable and related outcomes: (1) confusion in the company’s messaging, and (2) overspending on marketing. Maintaining the discipline to pursue opportunities within the revised strategic positioning will require the CEO’s leadership; regaining a strong sense of clarity often requires outside help.
Part 2 of this article covering increase your multiple, understand the jungle, and hang with winners will be published soon.
Part 2 of this article: 2014 Issues for a 2016 Exit – Part 2