Exceptional

What do many EY Entrepreneur
Of The Year Award winners and
other successful founders do
once they’ve met their business goals? They
often either reach out for an injection of
financial or intellectual capital to scale their
companies further, or they consider selling
their businesses to fund their next idea or
a comfortable retirement.
For those who choose to sell, we offer
some tips to help increase sale value,
based on findings from the 900 corporate
and 100 private equity executives that EY
interviewed for our recent Global Corporate
Divestment Study.
Make the market
At least 24 months prior to considering
an exit, sellers should critically assess the
value of their company to potential buyers.
They must understand what drives a buyer’s
purchase decision and communicate the
opportunity to the next owner.
Future owners will want to understand
how value can be added to the business
during their ownership (and ultimately
after their own potential exit), so they
will want to understand the underpinnings
of the operating model. And they will
need to discern whether the business
is in a growing market with high-quality
differentiated products or services, and
whether opportunities exist for additional
bolt-on acquisitions.
Often equally important is the current
management’s credibility and vision. While
the new owners will bring a new impetus,
they will want to work with the current
management team — at least in the short
term — to maintain the growth momentum.
Convince buyers to pay for upside potential
Sellers should try to convince buyers to pay
for the company’s upside potential using a
value creation road map that clearly sets
out profit potential, whether it’s from driving
top-line growth or through operational
39%
more companies generate a price above
expectations if they develop a value
creation road map.
What is a value
creation road map?
Road maps are an important
communication tool to show potential
buyers what value creation initiatives
the seller has initiated or planned,
and which can enhance company
value further once they are completed
by the buyer. Examples include
plant rationalization, operational
improvements and already initiated
revenue enhancement or restructuring
actions. However, road maps are only
credible when sellers demonstrate a
historical track record of achievement.
This is particularly important when it
comes to launching new products or
successfully completed R&D programs.
efficiencies. Specifically, sellers should be
able to present the following to any buyer:
• Clear links between top-line
performance and the markets and
competitive environment in which
the company operates
• A detailed view of margin and cost
structure and a plan for how they could
be maintained or improved in the future
• Future plans and opportunities that are
not reflected in the current-state model
• Pro forma view of the business under
a different capital structure
Who were the buyers?
12x
10x
8x
6x
4x
2x
0x
2011
Continue your growth trajectory
Sellers must continually evaluate the
potential returns from continuing to
improve the company’s attractiveness to
buyers. Companies that continue to create
value in a business targeted for sale or
divestment are 75% more likely to receive
a higher-than-expected price.
Consider all potential buyers
Only 11% of executives surveyed sold to
private equity buyers in their most recent
major sale or divestment. Many sellers
think strategic buyers will pay a higher
multiple, but that isn’t necessarily the case
(see graph, below). Private equity buyers
are often more creative in their evaluation
of potential acquisitions. Corporate buyers,
by contrast, are often unwilling to pay for
synergies. Market data shows that strategic
and financial buyers pay similar multiples
for businesses, with no clear pattern of
one buyer type consistently paying more
than another. Further, sellers can increase
competitive tension by making the value
story transparent.
Founders have dedicated their lives to
the growth and success of their company.
And they, rightly so, often see the
business as a reflection of themselves.
But when they sell, they will serve the
company and its stakeholders best if they
objectively examine the business through
the eyes of a buyer and take the steps
needed to maximize value before and
during the sale.
2012 2013 2014 2015
Financial
buyer
Strategic
buyer
Source: S&P Capital IQ, EY analysis, 1 January 2011 to 1 December 2015. Includes all transactions
globally (4,341) where the buyer took a majority stake in the business and the target businesses
had positive EBITDA multiples.
Exceptional Exceptional January–June June 2013 2016
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