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Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
Exiting Your Business - Being Exit Ready
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Exiting Your Business - Being Exit Ready

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Being ready to exit your business does not mean you have to sell - but it will mean you will probably maximise your business value.

Being ready to exit your business does not mean you have to sell - but it will mean you will probably maximise your business value.

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  • 1. Presentation Exiting &Harvesting Ventures Michael Royal CEO & Founder BIR SolutionsP 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 2. Things to Contemplate for Today’s Presentation• Why do you want to start up a business?• What are the most important issues in starting up a business?• What do you want to know more about today?• What would make a difference to the development of your exit strategy?• When is a good time to a) consider your exit strategy and b) build your exit strategy? P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 3. Table of Contents• BIR Solutions• Business Realities• Buyers & Sellers• Valuations• Selling & Exit Issues• Pre-Sale Process P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 4. BIR Solutions Building Improving & Restructuring better solutions for you and your business Imagine great business solutions? We do!When you are in the black BIR Human BIR Strategy BIR Finance Capital Solutions Solutions Solutions Talent management Mapping your road Funding your of the right people to success sustainability & growth Retain, develop, Foundation, vision, Balanced, measured, Recruit Planning Structured Click here Click here Click here Solvency & Viability – the line in the sandWhen you are in the red BIR Solvency Solutions Turning insolvency into solvency Saving businesses, saving stakeholders Click here P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 5. Our Solutions We assist with your planned exit strategy BIR Accountant & Model strategic buyerBusiness Broker Model Finding a for the purchaser Adding value $ Typical EBIT Multiplier $ $ Now 12 to 24 mths P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 6. Business Realities: The Business Life Cycle Model = Decline = Recovery Maturity Decline ?Size ? Start up ? Growth ? ? ? Time P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 7. Business Realities• Business failure is high in the first 5 years of a business’ life.• Most successful businesses are not ‘sale ready’.• Buyers get to look at lots of businesses and learn by trial and error during the acquisition process – Sellers only sell once each time.• Most owners only sell a business once or at most twice in their lifetime. They are chronically under-prepared for the sale process and at best, learn on the job. They are experts at working ‘in their business’ and perhaps working ‘on their business’• BUT NOT ‘selling their business’! P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 8. Business Realities• A business sale is the single largest transaction most business owners will enter into. It has the capacity to make them a lot of money – or they can leave it on the table for the buyer.• More business owners will be selling over the next 10 years. Supply may outstrip demand = Prices for ‘average’ businesses will decrease.• Most SME businesses sell for a multiple of between 3 to 5 times earnings – if that is higher than the Net Assets being acquired. P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 9. Business Realities*** NEWSFLASH ***• SME business prices have hit a new low as baby boomers looking to retire are selling into a buyers market.• Growth in volume of sales has slowed (but still growing).• A continuing decline in values & multiples of EBIT over the past 2 years.• Many owners choosing to ‘liquidate’ rather than sell as a going concern Source Bizexchange Index www.bizexchange.com.au• CONCLUSION – TIMING IS EVERYTHING BUT PLANNING CAN HELP P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 10. Buyers & Sellers• Buyers buy based upon what they can make out of the acquisition on a best/worst case i.e. their best/worst case future earnings from the assets being acquired.• Who is the right buyer? Someone who is:• Identifiable & reachable.• Willing & capable of undertaking the acquisition before, during and after the deal.• Will regard the deal as a sound business decision before, during and after the deal. P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 11. Buyers & Sellers• Buyers discount for risk and rarely pay a premium for unverified potential• Higher multiples are applicable where:  Typical risks can be shown to have been removed.  Potential future growth has been verified preferably externally. P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 12. Buyers & Sellers• Buyers who have a track record of buying are likely to have an existing model for acquisitions:• This is a plus as it makes it easier to identify how and why a buyer will buy and what they will buy.• This is a minus as the model can restrict how much the buyer is willing to pay. P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 13. The Seller’s Job• Identify what the buyer wants to buy (don’t sell them what they don’t want to buy – sell it elsewhere or hold on to it).• Understand how the buyer wants to buy (previous history).• Show the buyer what they can make out of the sale on a best case but likely scenario.• Reduce or eliminate those risks/issues which impact on the buyer’s worst case.• Put forward a logical and persuasive argument as to why the buyer should share with the seller part of the likely upside.• Have a plan for your life after the sale!!! P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 14. Selling & Exit Issues What makes a seller want to sell?• Opportunistic buyer comes along at a ‘good price’• Business/private circumstances change for the owner• Owner does not have the desire / ability to grow & change• Business requires major internal changes to survive / grow• External forces requires a change in the business to survive / grow• Business requires new funding to survive / grow P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 15. Selling & Exit Issues Typical Exit Options• Trade sale• Management Buy Out - MBO• Management Buy In - MBI• Private Equity / Venture Capital  Fund  Individual / Angel Investor• Initial Public Offering – IPO• Liquidation & Planned Wind down – Asset sale P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 16. Selling & Exit Issues Factors to Avoid in Business• Not being prepared for an offer for your business• Losing control of your business  External factors  Internal factors  Funding factors P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 17. Selling & Exit Issues What Buyers Look For• Trade sales  Strategic advantages  Synergies  Continuation of revenue & containment of costs• MBO’s & MBI’s  Profits & cash growth to pay back debt, buy out a VC  Growth to facilitate an IPO P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 18. Selling & Exit Issues What Buyers Look For• Private equity  Return on investment through profits & growth  Industry acquisition roll up  Clear exit strategy 3 to 5 years – IPO / Trade Sale• IPO  Return on investment through profits and growth P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 19. Selling & Exit Issues Key Issues to Exiting Successfully• Be prepared. If unprepared, preparation for an unprepared business can take a long time: + 2yrs• Control the timing of your sale process & exit• Understand your business• Understand your likely buyers• Have 3 or more buyers available to create competitive tension P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 20. Selling & Exit Issues Key Issues to Exiting Successfully• Keep the ‘during sale’ timeline tight to avoid interest waning – this means being prepared• Determine if your business is likely to be a  Financial Sale  Strategic Sale  Or a combination P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 21. Selling & Exit Issues Definitions• Financial Sale Where a buyer looks to the business acquisition to provide future profits in its own right.• Strategic Sale Where a buyer seeks to gain a strategic advantage which it either cannot develop itself or which it cannot develop itself within a requisite timeframe. P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 22. Selling & Exit Issues Key Issues to Exiting Successfully• Be able to answer the question “Why would I pay more for this business than a standard multiple of earnings?”• Like any sale process you are selling the sizzle, not the sausage.• Don’t forget the Buyer’s WIIFM – What’s in it for me? P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 23. Selling & Exit Issues Key Issues to Exiting Successfully• Payment terms• Payments upfront reduce risk for the seller and so may be lower price paid• Payments delayed increase risk for the seller (Will the payment events happen? How will the payment events be interpreted?) but reduce risk for the buyer and may increase the purchase price P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 24. Selling & Exit Issues Financial Sale• Key Attributes of successful sales:• Historical profitability• Sustainable profitability for the future = sustainable competitive advantage in the existing business• Low business risks• Future growth opportunities for existing business• Management not being supplied by buyer must be locked in and motivated to succeed P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 25. Selling & Exit Issues Financial Sale• Examples  Private equity deals  Most SME deals  Many Listed company deals• Types of businesses  Most business sales• Valuations – normally 3 to 5 times but perhaps up to 10 times as per this presentation P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 26. Selling & Exit Issues Strategic Sale• Key Attributes of the business:• Unique attributes not readily available ‘today’• Attributes are scalable• Attributes can be amalgamated into another (larger) business• Sustainable competitive advantage• Low business risk• Management who can unlock potential must be motivated & retained P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 27. Selling & Exit Issues Strategic Sale• Not Necessarily Required:• Historical profitability• Existing sustainable business model• Largeness compared to buyer can be a disadvantage – disparity in size often holds the key P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 28. Selling & Exit Issues Strategic Sale• Examples  IT Hi Tech R&D Fashion Agricultural science Telecommunications• Valuations: can be a huge multiple of current earnings – often based upon buyers potential earnings rather than seller’s historical earnings• Why? The seller is seeking to share in some of the upside which will flow through to the buyer from the acquisition from acquiring the strategic assets P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 29. Pre-Sale Process• Alignment of interests:  Directors, Senior Management & Shareholders  Build post-sale scenarios for stakeholders  Make sure all stakeholders see upside• Due Diligence  Select the right Advisory team for your sale – Tax, Audit, Negotiator  Minimise risks for the buyer – discounts are made for poor, incomplete or missing key factors + the costs of due diligence in achieving the proposed end result P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 30. Pre-Sale Process: Minimising risks for the buyer• External Factors:  The impact of Porter’s 5 forces model (Competitors, Customers, Suppliers, New entrants, Substitutes)• Internal Factors:  Values = Leadership & Management  Asset protection – intellectual, financial & physical  Asset & Liability management – relationships, agreements & compliance with agreements  Systems & processes – incl. internal & external verification  Human Capital Retention strategies P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 31. Pre-Sale Process: Minimising risks for the buyer• Minimising due diligence risks:  Have a history of audits from a reliable firm  Have due diligence files ready and fully prepared  Have risks identified and anti-risk strategies explained• For each cost ‘sustainably’ removed from the business, add at least 3 to 5 times its value• For each risk removed from the business, add to the multiple being used. P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 32. Pre Sale Process: Strategy• Understand the buyers:• Identify likely buyers• Identify key attributes for these buyers which  Add a premium to the sale price  Reduce the final sales price• Set up non-sale communication with likely buyers• Implement strategies for adding value• Benchmark performance• Process improvements• Validate future profit potential opportunities P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 33. Pre-Sale Process: Strategy• Premiums are added for strategic advantages, ‘laid in concrete’ future opportunities  Trial new opportunities to demonstrate their potential is real  Obtain Heads of Agreement subject to current constraints being overcome (eg lack of capital to implement) P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 34. Case Study #1 Facts• Manufacturer – food industry – 25 years• Turnover $30M increasing to $40M• Margin fluctuates• Recent history of losses• Local customers – mainly major retailers• Imported some key raw materials• Employees – many with long years of service• Union site• Small player in the industry• Competes with large global companies (local prod’n) & other small local manufacturers P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 35. Case Study #1 Issues Impacting Saleability• Does it have any competitive advantage or unique selling proposition?• Are its global competitors interested?• What other local competitors might there be?• Is the industry open for some form of horizontal roll-up?• Can it sell to overseas markets?• Does it have brand(s) recognition? P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 36. Case Study #1 Issues Impacting Saleability• Can it manufacture off shore?• What is the history of OH&S & EPA?• What redundancy costs if business is relocated?• Is Plant & Machinery up to date & efficient? P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 37. Case Study #1 Issues Impacting Saleability• What about debt?• What about profitability?• What about cashflow?• Does it have detailed systems & processes for:  Manufacturing?  R&D?  Market Research?• Is it a sale of business & assets or a sale of shares? P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 38. Case Study #2 Facts• Distributor – capital equipment construction – regional territory (VIC)• $9M turnover  New Unit sales – low margins  2nd Hand Unit sales – reasonable margins  Service sales – reasonable margins  Parts sales – high margins• Has been improving processes• #3 amongst competitors in Construction Industry• Australian Distributor is subsidiary of global supplier• Floor plan finance for stock P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 39. Case Study #2 Issues Impacting Saleability• What are the determinants of future sales?  Controllable & Uncontrollable (eg economy, building & construction)• Is it getting all the service work from all its old sales?• What impact do warranties have on the sales process?• Is the global supplier good at honouring warranty obligations (quick, generous)• Is it located on the right geographic location? P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 40. Case Study #2 Issues Impacting Saleability• Is suitable floor plan finance in place?• Can a competitor selling competitive products buy the distributorship?• If not, who are the logical buyers? P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 41. Case Study #3 Facts• Training business – corporate training programs for staff.• Turnover $0.6M  50% from the Gov’t RTO program  50% paid 100% by clients• Profitable• Owner works 3 days/wk• All training staff are contract staff.• Small head office staff. P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 42. Case Study #3 Issues Impacting Saleability• Is turnover too low to attract competitive interest?• How many clients are repeat Vs new?• What happens if the Gov’t stops the RTO program?• Is there a formula driven sales process which has a known conversion rate?• Are there add-ons to increase the value of each sale?• What new products can be added to the sales mix?• What if the owner wants to start again in the industry?• What agreements and non-compete clauses are in place with the key trainers? P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 43. Thank you for your time today! Further Questions? P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 44. Appendix 1: Valuations• Business valuations:  Asset based  Multiple of Future Maintainable Earnings (PE)  Discounted Future Cashflow  Industry ‘Rules of Thumb’• All valuation methodologies intuitively take into account risk and return.• The greater the perceived risk of the future not at least reflecting the past, the greater the discount. P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 45. Appendix 1: Valuations• Unless shown otherwise, all other assets being sold have an inbuilt risk as to the likelihood of the asset generating a return equivalent to its historical return.• When an asset has an extraordinarily high value multiple of current earnings, there is an unstated implication that future earnings will be far higher than past earnings. P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 46. Appendix 1: Valuations• Valuations of future performance factor in:  Reliability of historical revenue streams being repeated year on year  Likelihood of future revenue streams being increased  Reliability of underlying costs being maintained at current levels for current revenues  Likelihood of additional costs being required to service higher future revenue levels• The greater the certainty of these, the lower the risk to the buyer and the higher the price willing to be paid P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 47. Appendix 1: Valuations• High PE’s - think Amazon, Google etc in the last 10 years and their premium over a normal PE.• There is an expectation that future earnings will increase sufficiently so that a realistic PE based upon future earnings would result in the current market price being ‘fair’ to the buyer, taking into account risk. P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 48. Appendix 2: Selling & Exit Issues IPO’s 2008 Review www.ipohome.comA Lost Year for IPOsIn light of the unprecedented financial crisis, interest in the IPO space all butdisappeared in 2008 and issuance volume sank to levels not seen since the1970s as investors, burnt by sharp stock price declines, refused to put newcapital into the IPO market and are instead waiting for the market to stabilize.This trend negatively impacted the performance of the Renaissance IPOIndex, which saw a major drop in the second half of 2008 after many years ofsignificant outperformance. P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 49. Appendix 2: Selling & Exit Issues IPO’s 2008 Review www.ipohome.comFinancial Technology P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 50. Appendix 2: Selling & Exit Issues IPO’s 2007/08 Review www.ipohome.com SPAC – Special Purpose Acquisition CompanyHealthcareBusinessServices Technology Financial Energy P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright
  • 51. Appendix 2: Size of Deals 2008 www.ipohome.com P 1300 783 309 E info@bir.net.au W www.bir.net.au All information provided is subject to copyright

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