Business Exit Readiness – Are You Ready?

For owners who are considering a future transaction of their business, it is important to know that your “exit readiness” today is essential to have a successful transfer that maximizes value in the deal when you’re ready.

From our experience, we have noticed buyers have been subject to deeper scrutiny and more in-depth due diligence than we have historically seen.  As a result, preparing your company for the due diligence process is vital to limit the valuation erosion that could occur during the length of your exit cycle.

There are different ways to maximize and preserve value, but the key is to think about them early in the process. Below are a few aspects to consider as you plan the future of your business.

  • Assess the quality of historical earnings, projections, and operations because this key financial information is the basis of which the purchase price is determined. Having a pre-emptive look at the quality of this financial data ensures the buyer and seller views of the financial performance of the company are aligned.
  • Working capital is the basis for determining the final purchase price. An assessment of net-working capital levels and the definition of working capital to be used in the purchase agreement ensures there are no unexpected purchase price adjustments after the transaction closes.
  • Most businesses operate in unique industries or a cross-section of end-markets which could make it difficult for a buyer to assess market and competitive advantages. By preparing a commercial diligence report for the market and industry in which your business operates will allow you to better depict your business in the most advantageous way as possible to a potential buyer.
  • Most purchasers look for earning growth opportunities after the transaction closes. A potential seller could maximize their value by identifying quantitative and qualitative synergies during the exit cycle to explain future opportunities within your business that would lead to a higher value.
  • The exit cycle could be a lengthy process involving multiple key stakeholders in the business, so it is important that there are minimal business disruptions during this process. Having a sophisticated data room that is easy to navigate can facilitate a seamless process with no business disruptions. Data rooms also need to be organized efficiently and be kept up to date so that the data flow is effective and efficient.
  • In some circumstances, business owners may only want to sell a portion of their business, which means your company will have to provide carve-out financial information to interested buyers which could be cumbersome and difficult to generate. It is important to determine which aspects of your business may be sold and determine if you have the internal resources to prepare historical financial information that may not exist on a standalone basis.

Our team has significant experience with business divestitures to support your business needs. If you would like to discuss how we can help you and your business prepare for a smooth transition, please contact us.

About the Authors

Mark B. Bober
Mark B. Bober
Partner and Executive Committee Member, Transaction Advisory Services, Valuation Services, Litigation Support


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