Business Exit Planning by Les. Nemethy

Author:Les. Nemethy [Nemethy, Les.]
Language: eng
Format: mobi
Tags: (ebk), 9780470905319, ISBN 978-1-118-02297-9 (ebk), ISBN 978-1-118-02296-2 (ebk), ISBN 978-1-118-02295-5
Published: 2011-01-27T03:24:14+00:00

Financial Investor

Strategic Investor

Control

Typically allows the local owner

Will usually require total

day - to - day operational control.

control, as a strategic

Some will insist on owning at

investor will typically be

least 51%, while others will

focused on merging into

agree to take a minority

global or regional

interest. Most fi nancial

operations to gain

investors will wish to take full

synergies.

control of management if the

Business Plan is not

consistently delivered. Business

Plans are generally developed

jointly with the owner.

Expertise

Typically brings great fi nancial

Typically brings know - how,

and often strategic expertise,

technology, systems, access

sometimes operating

to markets and operating

experience in specifi c

expertise within the sector

industries, and almost certainly

in question. May also bring

considerable expertise in

experience in fi nance and

corporate governance.

corporate governance.

Time horizon Typically a three – fi ve - year

Long - term focus. Generally

investment horizon. Will want

not concerned about exit.

to know the exit strategy prior

to seriously considering an

investment.

Motivation

Very focused on fi nancial returns

Not as concerned about IRR.

over the above time frame

More concerned about

(e.g., typically an Internal Rate

operational synergies with

of Return (IRR) in the range

the investor ’ s existing

of 20 – 30% per annum). Will

operations. May or may

normally require a detailed

not require a business plan.

business plan demonstrating

returns. The business plan is

generally initially developed by

the owner, then fi ne - tuned and

agreed jointly by both parties.

Management

Quality of existing management

Quality of management is

is generally vital to the

important for many

transaction, as fi nancial

strategic investors,

investors will typically try to

particularly where there is

tie in the management for at

a scarcity of management

least several years with equity

resources, but less so for

participation.

others who have their own

management that can be

parachuted into the

company.

111

112

BUSINESS EXIT PLANNING

time the process has reached that stage, you would only negotiate an SPA with one party (although a strong element of competition would continue

to exist if the investor realized that there was another one or more investors waiting in the wings, in the event that negotiations reached a dead end).

Where there is extremely strong interest in the company being sold, the

competition is not just to see who will be the ultimate investor; there is also competition at each step in the process as to which investors proceed to the next level (e.g., which investors receive the IM or proceed to the data room).

WHY USE A COMPETITIVE PROCESS

IN SELLING A BUSINESS?

In our experience, a competitive process the high offer received for

any particular company is on average two to two - and - a - half times the low offer.

A competitive process has numerous advantages for many businesses:

■ It drives up price: An auction process generally unleashes the competitive spirit of bidders, sometimes driving prices to stratospheric levels, and the effect is no different when a competitive (e.g., controlled

auction) process is applied to selling companies. From my experience

in working on the sale of more than 200 companies, in a competitive

process the high offer received for any particular company is on average two to two - and - a - half times the low offer. Why is this? Different investors have different levels of motivation for buying a particular company.

Some investors might view the target company as a highly desirable

and synergistic strategic investment. Other investors might be bottom

fi shers, seeking to scoop up distressed assets (see Box 8.

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