If you are CEO of a private equity-backed company, there is one certainty – there is a transaction in your future and you want to do everything in your power to maximize the valuation.

I have been closely involved in six exits, with three as CEO. The two recent companies were Revitas, an LLR portfolio company that we exited in January 2017. Shortly thereafter, I joined eOriginal, another LLR portfolio company that was acquired by Wolters Kluwer in December 2020. What follows are my insights and lessons learned to help others in their exit planning strategy.

Insights and lessons learned for an effective exit strategy:

Sharpen your story so that it communicates your value

We sold two of my companies by hiring an investment banker and going through an auction process. One was sold to another PE firm and was an unusual business that required educating buyers as the first step. The second was to a strategic acquirer and the top challenge was driving to the right valuation. In either case, telling a compelling story that resonates with buyers was critical to attract and engage the right bidders.

Before I go into details, the most important thing to know is that the CEO has ultimate responsibility for the sale. You can hire the best bankers, but it is the CEO who is responsible for telling your story and ensuring your company’s value is clearly understood and reflected in the sale price.

The first step is to make sure your story is clear and communicates value. This is reflected in the CIM or CIP and will be the basis for your early engagements with buyers. If going through an auction, what you communicate in the CIP will likely be the basis for the first round of bids. My advice is to spend as much time as needed to tell a clear and compelling story that:

  • Demonstrates an understanding of the market
  • Describes the way your company fits into that market
  • Highlights the company’s differentiating capabilities
  • Provides historical and future growth metrics
  • Demonstrates there is meaningful future growth with plans and pipeline to support it

The overall theme will be the same irrespective of whether the buyer is strategic or financial. However, it is best to be able to tailor your story for both. For example, be prepared to discuss synergies to be realized by a strategic – whether complementary products, cost reduction, or both. With a financial buyer, organic growth is vital, but you need market expansion and acquisition opportunities clearly identified.

You can hire the best bankers, but it is the CEO who is responsible for telling your story and ensuring your company’s value is clearly understood and reflected in the sale price.

Establish credibility by meeting or exceeding projections

The relationship between what you say and what you do is equally as important as the story you tell. I refer to this as the “Say-Do Ratio”—making sure that your performance always meets or exceeds what you say or project. This starts before the exit process begins by consistently exceeding your sales forecast/budget.

Once the sale process begins, it is imperative that you hit your quarterly numbers. The only thing better when selling to a strategic is beating them in every sales cycle during the process. In selling Revitas to a strategic, we exceeded our numbers and not only won every deal against them but dislodged them from one of their largest accounts. There is no doubt this not only led to a sale but maintained price in a very challenging process.

As I mentioned above, you need a compelling go-forward story, too. Achieving your numbers in the current year establishes your credibility on all fronts, especially regarding growth forecasts.

The CFO bears a heavier role than anyone else, so you need someone that is not only up to the task but relishes the role.

Get the right CFO in place to quarterback the exit strategy

Your CFO is your wingman through the sale process and his or her role is vital to a successful outcome. You should have someone that you and your board unequivocally trust, and who can provide a compelling financial narrative to buyers.

No matter how taxing the process will be on you and your team, the CFO bears a heavier role than anyone else, so you need someone that is not only up to the task but relishes the role. He or she will be responsible for much more than providing financial results. They will interface with the buyer’s financial team, outside auditors, a third-party accounting firm for quality-of-earnings review, investment bankers responsible for developing the investment thesis financial model, legal teams, and many more parties.

Regardless of how much information is posted to the data room, your CFO will have to provide endless amounts of supplemental information to the groups noted above and explain what you believe to be self-evident answers. These communications require strong supporting documentation and lots of it. It takes patience and fortitude to manage the relationships and flow of information during an exit, so you need the very best person in this role as possible.

Don’t risk delays or the valuation with a weak link on your team

At some point, the buyer will have access to your management team and others. If there is a weak link it will be exposed in the process and can present problems ranging from delays to valuation impact. The stronger the team, the more value the buyer will see in your company.

My experience has been to not only answer a question but make sure you provide an explanation to make it easy for the buyer to understand your business.

Organize your documentation

While there are many items specific to a sale process, the sooner you have all your financial, legal, and sales information highly organized the better. For example, are all your contracts available for buyer review? Are there clauses in these agreements, such as most favored nations, that will cause a buyer concern? Do you have historical pipeline data versus actual results to prove out your projected sales forecasts? Do you have any security issues within your application software or cloud operations that will hurt your credibility and present anything less than an operationally efficient team? Consider engaging outside audit firms to identify gaps that a buyer will find when they bring in their auditors – financial, security, code review, etc.

Be prepared to answer an endless list of questions

You will be besieged with questions for multiple parties – buyer, banker, audit firm, and others. Agree to priorities with the buyer. My experience has been to not only answer a question but make sure you provide an explanation to make it easy for the buyer to understand your business. This will eliminate follow-on questions and build trust with the buyer.

Missing sales or revenue numbers can risk the valuation of your company and delay or even terminate your exit plans.

Keep focused on operations

Finally, no matter how hectic the exit process becomes, don’t neglect day-to-day operations. Ultimately, it falls to the CEO to ensure that the exit and the business are moving forward simultaneously. You need to ensure you hit your sales and financial forecasts, and operational metrics are on track, because missing sales or revenue numbers can risk the valuation of your company and delay or even terminate your exit plans.

Balancing the demands of a successful exit with those of a successful business is not easy. This is a period of long hours and high stress. But, at the end of it all is the reward of knowing that you got the deal done at a great price and added another significant accomplishment to your resume.

Here’s the bottom line.

Exiting a business is as valuable a skill as launching and growing one. It is a labor-intensive, unpredictable process, but having the right team in place, crafting a strong story and staying on top of key information will help you see the greatest value for your company.

This GrowthBit is featured in LLR’s 2022 Growth Guide, along with other exclusive insights from our portfolio company leaders and Value Creation Team. Download the eBook here.