Exit Execution Workshop (Philadelphia) Part 6: The Exit Team and what it will cost
This is the sixth in a series of eight posts on Exits Execution – the Philadelphia Series. In this session, Basil describes the ideal exit team and some of the subtler issues affecting an exit.
The Exit Execution series follows the Exit Preparation presentation and Exit Strategies – The Waterloo Series available on the exits.partners blog.
The Exit Execution workshop was first presented at the Angel Capital Association Annual Summit in Philadelphia on May 9, 2016.
EXIT Execution – THE Philadelphia SERIES
PART 6 – THE EXIT TEAM AND WHAT IT WILL COST
The success of an exits depends on many external factors such as the economy, M&A market, competitive environment, market timing, and other external market conditions. Just a few, including the capability of the CEO, the timing of the exit, the preparedness of the company for an exit, are under the control of the company. To improve the chances of success requires engaging an exit advisor or investment banker who is experienced and understands your company and industry and is prepared to do the heavy lifting to fully market the company to all potential buyers.
The M&A advisor’s job is to take as much of the exit strategy, planning and execution away from the CEO and company as possible. The exit takes significant time for the CEO and management team even in simple transactions. The advisor’s experience and dedication is essential to smooth the process and ease the burden.
There are points of negotiation in any exit, some of which may be contentious. The exit advisor must be the “bad guy” and take these negotiations away from the CEO. Since the CEO will be remaining with the company post exit, s/he needs to develop a strong partnership with the buyer, so cannot be the negotiator.
Advisory fees range widely depending on the size of the deal and the experience and level of service of the advisor.
The company will also need to engage a professional accounting firm to audit or review the financial statements, oftentimes to prepare a Quality of Earnings Report which requires intensive review of the numbers. In addition the company will need to engage lawyers experienced in M&A and others experienced in tax, in order to structure the exit transaction to the advantage of the company and founders. This is especially true if the acquisition takes place in more than one country.
The advisors’ fees can climb to several hundred thousand dollars, which first-time exiting CEOs often find shocking. As expensive as the advisors are, the cost of an exit cratering due to inexperience and capability is far higher.