Planning for an exit? How to prepare and choose the right exit path for your company?

Achieving a sale or flotation is a key long-term goal for many fast growth companies and investors backing them. However, it can be difficult to plan and prepare for the exit while grappling with the day-to-day challenges of running a high growth business. The chances of an exit falling through can be greatly decreased (and valuations maximised) by proper exit planning and preparation. Herein we have contemplated a few key questions for growth companies to consider as they look ahead to a potential exit.

What exit path should I choose?

While the most typical exit paths are share sales through M&A transactions and flotations to public markets through IPOs, also asset sales and structural reorganisations (mergers and demergers) belong to toolbox. Typical questions for the founders to ask themselves are what the most desired exit structure for the potential buyers is and should the exit be full or partial (i.e. do the founders wish to continue as owners in the company also after the transaction).

Should I pursue an IPO?

In case an IPO, you should consider whether going public is the right choice for you and your company. While going public can strengthen your company’s brand and it’s capabilities to raise growth capital, it will also bring about some regulatory/compliance burden e.g. due to stock exchange and inside information rules. In an IPO shareholders can typically sell part of their shares in the company to public market investors in order to secure sufficient liquidity for the company’s shares, but many times they still have a significant ownership in the company also after the IPO and are subject to customary lock-ups preventing share sales within one year after the flotation. Regardless of the exit path chosen, thorough due diligence is always performed in order to provide sufficient comfort for the potential buyer or the arranging bank of the IPO. Hence you should have your house in top notch order well before the commencement of the process.

How to prepare for the exit process?

Exit process dictates significant efforts from the company and its key shareholders. It’s always best to plan ahead and prepare well in advance in order to achieve the best possible result and smooth exit process. Fix your legal housekeeping issues (corporate documentation, key commercial agreements, GDPR compliance, potential disputes and key employees’ employment agreements). Review your option and share incentive arrangements and your shareholders’ agreement to understand how they behave in different exit scenarios. Review you financing package – is refinancing or any amendments/waivers needed before the exit can take place?

In case an IPO, carry out pre-IPO due diligence and pre-IPO readiness review in order to tackle any shortfalls before the prospectus drafting and IPO premarketing commences. Check your financial reporting capabilities and internal control functions in order to be able to produce reliable and timely financial disclosures to the market. Take any skeletons out of your closet and deal with them before the process goes forward (naturally better not have them in the first place, but this is the final time to address any issues before the IPO takes place).

In each exit process external advisors typically play an important role. Which advisors you and your company need and what are the correct advisors for you in the specific transaction at hand? Engage advisors early enough in order for them to be able to provide you and your company all of their expertise and maximise their value proposition for the transaction. In addition, make sure someone from your organisation is main responsible for managing the exit process and allocate sufficient resources for him/her to do a good job. Also remember that the company’s business needs to run and grow also during the exit process, so resourcing is key. Ask yourself – where can I produce most value for the process and concentrate your efforts on that – delegate the rest to other professionals.

And most importantly…

Remember to have fun and enjoy the ride! Despite the long hours and changing timetables, exit can be once in a lifetime process for many and thus remember to enjoy it while it lasts!

 

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