Blog: Exit Needs to Excite

The Often Misunderstood Exit Plan

It’s a given, that in most of the presentations I see as an Angel Investor, include a list of companies that the entrepreneur presenter says they expect to be bought at some defined point in the future. Of course one slide and some 30 second commentary is not an exit plan. An exit plan is now the norm needed, because I don’t remember the last time I saw a future return on the investors’ investment presented as dividends or an IPO.

I was fortunate to attend a webinar by a gentleman named Basil Peters with a title Steps to Follow When It’s Time to Sell a Portfolio Company. Some of the highlights Mr. Peters presented were: 25% of the companies have a successful exit, 50% had no exit, 25% for a poor quality exit.

It appears that the smaller the company the more difficult for an exit plan and less chance for a successful exit. Mr. Peters presentation showed the various steps for doing an exit plan and actually the exit plan is a business process. The process can take 6 to 18 months depending on the quality of the plan and must include, even before talking to potentials buyers, details about the company that includes financial information in detail and sales collateral. The selling vehicle to buyers is a story covering the pertinent information to excite buyers. This step d should also be the basis for a due diligence process.

There is a lot of research to be done to identify several companies that might be interested in buying the company. Obviously finding matches where their strategy and market segments would be a useful guide. This part of this process is to keep digging down to end up with a number like three very interested companies and why.

The selling company needs to create a situation where there will be competitive bidding, to get the best price for the company. This part of the process working with the final companies can consume all the time of the CEO and CFO, especially in the final step that is negotiating.

Peters make a point that the entire process can be very expensive, and requires experience, so a first time foundering team, should not try to do this by themselves; therefore, outside experts are a good idea.

One personal experience as an investor was with a company that planned to sell, and after committing this to their Board and telling the shareholders, a year was spent and the company gave up because they did not get one offer.  The Board decided it was the poor effort and not a lack of interest.

I was involved with a couple companies ready to sell and found a difficult problem, when do you tell the team you are planning to sell the company? First of all, this should be a positive situation, but problems can arise because people do not like change and they can become insecure and even more serious, distracted.

Another other problem I faced as a Chairman of the Board was the CEO got so involved because his effort was needed and as a result, the company performance suffered for several months.

I came away from the Webinar impressed with a statement Peters said, “Don’t let companies be bought”, which gives the buyer a big advantage, so therefore, “Companies should be sold.”  

For presentations, there should be one dedicated slide, but it irks me when the slide is filled up with a bunch of pretty logos for every company in their marketplace, but with no justification. This will be a turn off for some investors.

There should be some detailed information on why companies would buy them, and most helpful, comparing to some successful deals in the marketplace.