Thoughtful exit preparation, including the identification, segmentation and cultivation of serious buyers 6-18 months before a formal exit process consistently yields higher prices and greater certainty, says Victor Basta, CEO and founder of DAI Magister
Current market conditions, such as high interest rates, an increase in public companies going private, and the uncertainty of the future of capital gains means that achieving a successful exit requires thoughtful and sustained planning. A structured and thoughtful Stage 1 is essential for companies to articulate and communicate the opportunity they present to potential buyers. Broadcasting the opportunity in various ways to different buyer constituencies takes time and can only be accomplished during a structured Stage 1.
In light of this, DAI Magister breaks down the M&A process into two stages, where Stage 1 predominately focuses on marketing the company. This approach provides buyers with enough time to appreciate the full value of the company and its offerings, from which competition surrounding closing a deal develops and intensive Stage 2 begins.
According to DAI Magister, segmenting buyers into three categories: core buyers, potential buyers and wider buyer universe is crucial. For core buyers, it is imperative to deliver very buyer-specific information from the outset, defining exact points of leverage. Other potential buyers must also be considered, where outreach should be tailored by category with different sets of key points depending on which category each buyer operates in. Finally, for the wider buyer universe, there is a much broader canvassing for potential interest, with the expectation of a low hit-rate.
Victor elaborates: “Before a company can develop serious buyer interest, it is crucial to identify who those buyers are. In some cases, the best buyers are obvious, however more often than not, the eventual buyer emerges from one of several directions. By prioritising and filtering the best or most likely buyers during any 6–18-month Stage 1 exit prep process, advisors can focus time where it will yield the highest ROI.”
Basta continues: “The aim of this approach is to gain an understanding of each type of buyer, their perspective and how they might view such an acquisition. In doing so the most effective communication strategy for each group of buyers can be established. Although, about 90% of eventual buyers come from the core and potential buyers’ groups, occasionally, a ‘left field’ buyer emerges from a broader canvassing, with the rationale only becoming apparent later on.”
After investing time and resources into mapping buyers, cultivating buyer interest becomes the next focus. Buyers need to be able to see the full opportunity an acquisition can deliver with the merit of an acquisition being their idea.
Basta continues: “To maximise price and certainty, multiple buyers must want or need to acquire a company. When buyers are cultivated to the point where they are pushing for a deal, a company and its board can be certain their market-testing exercise will yield the maximum benefit. A core part of this exercise succeeding is achieved through actively prioritising a small group of buyers who you truly believe will see the deal through.”
Basta concludes: “By identifying, cultivating and generating interest amongst a selection of serious potential buyers in Stage 1, whilst aligning internally and externally on the key value drivers will deliver successful outcomes for all stakeholders across nearly every growth sector. And in doing so, companies can reduce the duration of the formal deal process, recouping much of the time spent on preparation whilst yielding higher prices and greater certainty.”
