Framework To Maximize The Exit Potential

What are we selling?

1. Stable vs Growing Business – A growing business is valued at a premium (reflecting PVGO) using a DCF or forward multiple as compared to LTM multiple for a stable business.
2. Current vs Optimized Business Model – An optimized business model with higher margins attracts a higher valuation multiple.
3. Type of Business – Strategic focus across products/services in the business plan can fundamentally change TAM, overall profitability, and the valuation multiple.
4. Current vs Optimal Strategic Positioning – An optimally positioned business has much higher chances to succeed as compared to the competition, therefore, drives a higher valuation.
5. Primary vs Secondary Sale: A primary sale reflects the issuance of new shares for growth capital and may increase the future exit potential considering increased scale and efficiencies.
6. Asset vs Business Sale: The right mix of components that are being sold can maximize the exit potential. In most cases, the business value is higher than the value of individual assets.

Who are we selling to?  

1. Financial vs Strategic Buyers – A strategic buyer considers the value of synergies and would be willing to pay a premium on the standalone value of the business as compared to a financial buyer looking for merely financial upside.
2. Private vs Public Buyers – All else equal, an IPO would lead to a higher valuation as compared to a private sale because of the discount for lack of liquidity in a private business.
3. Equity vs Debt – A leveraged recapitalization provides liquidity and may reduce the cost of capital.

How are we selling:

1. Exit Strategy – A clear and structured exit plan may not guarantee success but increases the efficiency of the efforts.
2. Use of Specialist Resources – Using internal or external specialists improves the quality of investor documents (IM, Teaser, and Financial Model), reduces the barriers to communication, and facilitates investor due diligence. Professionalism and transparency are the two most important elements.
3. Timing – Timing is crucial including the stage of the economic cycle, the timeline of financial results, and the status of business milestones. While this is easier said than done, the above framework may increase the likelihood of a successful sale and maximize the exit value for your business