Making the successful exit transaction happen

Sooner or later, nearly all entrepreneurs will be interested in seeking some form of exit or capital investment. Paul Cooper, partner at media and technology corporate finance advisory firm Clarity, gives his advice on what buyers are looking for and how sellers can best position themselves for a successful exit.

The UK is responsible for some of the most dynamic developments in the media and technology sectors and it supports a thriving market. At Clarity, we spend a lot of our time meeting a wide range of businesses in this sector. While there are many considerations in preparing for an exit, our experience has shown us that there are some fundamental guidelines worth following when positioning a media or tech firm to maximise value.

Buyers are currently focused on companies with a clear and executable strategy. All too often we speak with companies who have fallen into the trap of chasing revenue – any revenue – at the expense of nurturing the core business. Generating additional revenue in the short-term may seem appealing, but it can blur the value proposition of the business, leaving the strategy seemingly fragmented.

Focused approach

The sale of Investis, a transaction on which Clarity advised, highlights the importance of a clearly defined strategy. Investis is a pan-European provider of digital investor relations and corporate communications. It has over 1,000 clients including hundreds of blue chip companies. Being strong in its niche, focused on its core business and communicating this well was instrumental in achieving a successful transaction.

If you’re not clear on what your business does, or you cannot explain your core activities and how you make money from them, it’s going to be hard for a buyer to understand the strategy. This will ultimately limit the number of serious buyers prepared to contemplate an acquisition. Moreover, without being able to articulate the value proposition clearly, there is also a more limited chance of achieving a premium valuation.

Identifying a clear value proposition is key to attracting and sustaining interest from buyers. Five years ago, purchasers may have entertained a ‘left of field’ candidate, with various revenue streams diversified around a core. Now, with the need to reduce cost and mitigate risk, the qualification criteria are more brutal.

Buyers have neither the time nor the inclination to understand revenue streams that are derived on the hoof or ad hoc to a firm’s principle strategy. Multiple and varied revenue streams introduce unnecessary complexity and additional risk.

It is essential to be able to articulate your value proposition succinctly and persuasively. That said, having successfully made it onto a buyer’s short list, an acquirer will spend more time on detailed diligence and understanding the value chain of your business.

More on securing an exit:

Big boys

This isn’t just true for small growth companies. Far bigger companies have benefited from focusing on what they’re good at, doing it well and doing it lots of times.

Apple has grown to be the world’s largest tech firm by market capitalisation. Its strategy, through maintaining an innovative focus, has proved unwavering, ruthless and highly effective. Microsoft’s digital advertising and other tangential revenue streams – significant forays from their core software business – has proved less effective.

As part of more in-depth diligence, potential buyers may well want to interview a firm’s clients in advance of any formal process. We often see situations where the vendor and potential buyer have divergent views on why clients buy a particular service.

When considering positioning your firm for a sale or investment, take the time to understand what really drives your clients to use your services. Again, this will be a crucial element of building and articulating the value proposition.

Think hard about retaining the right type of adviser. Clarity is headed by three entrepreneurs and we understand the pressures, challenges and joy of running our own business. We spend a lot of our time advising people not to sell, but to work hard on bringing focus to their story. To this end, make sure you hire advisers who understand you, your business and your market. This is especially true in the media and technology sectors where an investment in the right advice will ensure an appropriate valuation.

Although important to mitigate any risk to an exit (particularly in the current economic climate), it is just as important to ensure that you capture the upside.

You must be able to clearly explain your value proposition, understand why clients buy your services and engage advisors who will work with you to both articulate and maximise the value in your business – be that in anticipation of an exit, a route to investment or merely honing your strategic focus. These elements will provide a head start towards achieving a successful transaction.

Hunter Ruthven

Hunter Ruthven

Hunter was the Editor for from 2012 to 2014, before moving on to Caspian Media Ltd to be Editor of Real Business.