Exit Row: Three Points to Consider

Highlights from the 2018 Inc. 5000 Conference

Key Takeaways

  • Get ready early: A successful sale process requires extensive preparation, which can take months or years.
  • Be transparent by identifying and disclosing any issues upfront and putting yourself in the buyers’ shoes.
  • Take the time to understand your potential buyers’ motivations, strategies and intentions and ensure they align with yours.

Entrepreneurial owners of successful, growing businesses are naturally looking ahead and gauging their next move. For many, this includes planning their exit strategy. The M&A market is strong, investors want to put capital to work and deal multiples are high. That leads many business owners to consider a sale, and appraise their preparedness for such an event.

In fact, according to the 2018 Harris Williams/Inc. survey on exit strategies, 94 percent of business owners, founders, and leaders surveyed are considering an M&A transaction over the next three years. Seventy-one percent say that M&A is more important today than just one to three years ago.


Source: 2018 Harris Williams/Inc. Survey on Exit Strategies

At the 2018 Inc. 5000 Conference honoring the fastest growing businesses in the U.S., Glenn Gurtcheff, a managing director at Harris Williams, participated in a panel discussion with Caroline Young, a partner at Hammond, Kennedy, Whitney & Company; and Ross Croley, the executive chairman of Ministry Brands, LLC. Combined, these panelists have been involved in hundreds of M&A transactions.

Here, we share the panel’s perspectives on what business owners should know as they contemplate their exit strategy, summarized into three essential ideas.

1. Get ready early

As Gurtcheff says, the best time to start thinking about your exit strategy is “yesterday.” Gurtcheff explains that he often meets with company owners several years in advance of a transaction, helping lay the groundwork for an inherently complex process.

To be sure, all panelists agreed that the key to implementing an exit strategy is to consider that strategy well in advance of selling the business. Business owners should use that time to think about what they want to accomplish in an exit. Do they want to walk away or stay involved in the business? How do they want to reward or protect their management teams and workers? How important is the business to the community – if the buyer wanted to relocate the business, is that OK? Deeply considering the objectives and parameters the seller wants in the sale is the first step toward making it happen.

Time is also required to get your proverbial “house in order.” Potential buyers and investors are going to ask difficult questions, and will expect satisfying answers. Your business must demonstrate both revenue growth and profitability, for instance. Panelists also emphasized the importance of recurring revenue, which makes the business and cash flow easier to manage, lets management focus on growth (versus revenue replacement) and creates more value on exit.

A large and growing total addressable market is also key. Investors want a strong return on their investment when they exit, and a likelihood of multiple exit opportunities for future investors. That requires a market with substantial growth opportunity.

Investors tend to be especially interested in what will happen in the next three to five years, so you will need well-thought-out growth initiatives and detailed demand forecasts. In fact, the more granular the analysis, the better the company can be run and the more value the sale will likely bring.

In sum, several specific, concrete steps can be taken well in advance of a sale. Having financial statements audited, maintaining a detailed understanding of the competitive landscape, and forming relationships with potential buyers are just three examples.

2. Put yourself in the buyer’s shoes

A sophisticated buyer will analyze current and projected financials, market data, customer cohort data and many other numbers. The data must exist and models and numbers have to be accurate. Discrepancies found during due diligence create buyer uncertainty.

Overall, you should place yourself in buyers’ shoes, and consider what they would be worried about. What are the issues affecting the business ­and how can they be addressed? You should be forthright about areas of risk, disclose them early, and show strategies for managing and mitigating them. 

One reason some deals fall through is that businesses fail to hit their financial targets during the transaction period. The sales process can take months to complete and businesses should be confident that they can achieve their financial targets throughout its duration, and be forthcoming with reporting on performance.

That leads to questions of how to run the business while going through a sale. The succinct advice from panel members is to “run your business like you are going to keep owning it.” Make the investments necessary for growth rather than foregoing capital expenditures in preparation for sale. That approach may affect profit and loss during the sales period, but could result in more value at exit. Panelist advice is tempered though: Don’t spend frivolously, and think about capital expenditures in a three to five year horizon – just as the buyer will do.

3. Know your options as it relates to different types of buyers

Conventional wisdom says that strategic buyers tend to pay more for a business than private equity, but may be likelier to lay people off and “dissolve” your business into a large corporate entity. At the same time, private equity has a reputation among some for running businesses with a three to five-year timeframe in mind, and no further. The reality is much more nuanced. Many strategic buyers want your firm’s talent as much as any other assets, while most private equity firms will need to sell a business again based on its long-term potential.

The truth is that there is no single best type of buyer for a business. Instead, the best option is a function of what the seller wants from the transaction. It is essential to understand each potential partner’s approach and intentions, and choose the option most in alignment with the owner’s plans. Plus, the price any buyer or investor is willing to pay has much more to do with industry, company and deal specifics than with “buyer type.”

Along the same lines, it’s important to understand how the business will fit within the buyer’s portfolio and how that will play out for the seller. A private equity firm could see the potential to make the company part of a larger platform, or want to keep it independent. A strategic buyer could absorb the business into an existing division or leave it standing alone.

Also consider industry expertise. Potential buyers and investors with extensive experience in an industry will understand a company’s growth story and challenges more readily, and know which levers will unlock the greatest value most efficiently.

Lastly, it is essential to understand the typical deal structures and terms the buyer uses, and how well aligned they are to the seller’s intentions. For instance, private equity firms often have specific expectations with regard to control positions, financing packages and board membership. If any of these would be showstoppers to a seller, the buyer search should continue.


Selling a business can be stressful and distracting for entrepreneurs, but the more prepared the owner and management team are for the process, the more smoothly and efficiently it will go. It’s never too early to gain a better understanding of possible exit strategies, anticipate buyer expectations and lay the groundwork to position the business for a future sale. Then, when the time is right, the business is ready.

Importantly, business owners should enlist the help of specialists. The trusted attorney who helped build the business may not be the right person to handle the nuts and bolts of the sale—an M&A expert might be a better choice. Likewise, investment banks should demonstrate deep vertical industry knowledge and prior transactions in the sector. Such a firm will understand your business, and knows the investor landscape to be able to bring well-matched buyers into the sale process.

Published November 2018

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