You have done the hard work: made a decision to undertake a transaction, found a buyer or investor for the business and agreed on a price. So what could go wrong from there - it’s all agreed isn’t it?
Value impacts or value erosion can still occur at any stage of a transaction cycle. Thinking ahead before you start down the transaction journey can help you not only maximise value from the outset, but also minimise the risk of value erosion throughout the process.
Your vision
Be clear from the outset about what you are looking to achieve from the transaction.
Are you exiting in full or in part? How are you expecting to exit the business - through a trade sale, private equity, or another route? Do you have the right management team in place for the period following a transaction?
Take time to prepare your vision for the future and the objectives you would like to achieve.
Enhance the opportunity
It might seem obvious, but ensure that all the value-enhancing or value-creating opportunities are clearly explained in the underlying equity story.
You are helping a buyer understand how the growth and value of the business could be delivered. Do not assume that the buyer or investor knows the drivers supporting your business. Lead the witness so that they are clear why you are winning in your market.
Think about your operational footprint: how do you win? What are your differentiators? What ESG considerations should they be aware of for example?
Equally, if the business holds assets that do not contribute to the profit stream of the business being sold, consider extracting them so you retain the value, rather than leaving them as gifts for a buyer. If they do not contribute to the business and profit stream that the buyer is interested in, they will not want to pay additional value for them.
Data
Does your data tell - and support - the equity story you have presented?
You will have invested time crafting the equity story to explain the benefits of your business and why someone must buy it. If the supporting data (both historical and forecast, operational and financial) does not align with the story, you potentially open yourself up to value erosion.
Buyers may interpret any mismatch as a risk and use it as an opportunity to reopen discussions around value and price. Remember, buyers will undertake a range of due diligence to verify and support the story you have presented them.
Defending value
Preparation is the key to any transaction. Having you and your team ready to answer questions will present a strong and well-organised business. It will also enable you to respond quickly to questions and to push back on any buyer value items. Put yourself in the buyer’s shoes early on: anticipate their questions and identify any challenges, along with the solutions.
Controlling the narrative connected with those challenges, and choosing when to present them, allows you to manage the messages and use the transaction process to elicit offers and value opportunities on your terms. By doing so, you prevent buyers identifying them at a later stage and looking to reduce a price because of something you should have known about.
Preparation, preparation and more preparation
There will always be unknowns within a business. But by controlling and preparing to cover off the knowns - the challenges, the solutions and the key information - you retain control of the transaction. You control the message and narrative. You present the opportunity and the rationale. You enter a transaction on an informed basis, with the ability to optimise your transaction outcome.
The next step
Your advisers are there to help, advise and assist you, to do the heavy lifting and to let you focus on running your business. They can walk you through the preparation and the value impacts of the transaction. But if you’ve done your part - preparing thoroughly and connecting the dots - you will significantly reduce the risk of value erosion throughout the transaction process.
For any advice regarding the above, please get in touch with Nick Carr at n.carr@uhy-uk.com or your usual UHY corporate finance adviser.
