Market testing and exit readiness

Test the market before you kick off a sales process and get your company exit ready

Successful companies often get approached by parties to discuss the possibility of an acquisition. Successful sellers decide not to work exclusively with parties who approached the company without knowing the true demand for the business. So, where possible, we work with businesses well in advance of a sales process to test the market and get the business ready for an exit.

As part of market testing we typically organise a series of fireside chats sessions. While management presentations can be tedious and repetitive, fireside chat sessions can be more relaxing. They are more conversational allowing for more feedback from the interested parties and hence more meaningful. In certain cases fireside chat session can also replace an Information Memorandum. Market testing allows the Board to address potential weaknesses in the equity story and establish a meaningful performance track record. Moreover it also allows management to avoid surprises and ensure the operations stay sharp during the time-consuming process whilst creating maximum value to shareholders. Park 56 will help you to:

  • Perform an exit readiness scan on your business and identify any areas that may impact the value of your business or the exit process
  • Take your business plan and turn it into a compelling equity story¬†underpinned by a solid financial data pack based in our industry expertise and creative strategic thinking
  • Jointly come to a list of interested parties and invite them for a fireside chat
  • Collect feedback and present this in a structured format to Board, founders and selling shareholders
  • Come to a clear recommendation on the best timing for a sales process and how to best structure it

Case Study: Work with the founders of a scale-up on exit readiness and a company sale

Background

The founders of a successful private Dutch scale-up received calls from private equity and venture capitalists who were interested in buying (part of) the business. The company was in great shape, with revenue and profit growing more than 20% per year. These inbound calls made the founders think: what would be the best next strategic step for our business? Is there an opportunity to accelerate the growth trajectory internationally, and if so, who would be the best strategic or financial partner?

They asked Park 56 to support them based on our industry experience and international network of strategic buyers, private equity and venture capitalists.

Getting the house in order following an exit readiness scan

We agreed on a series of fireside chats with different parties to sound out strategic and financial interest. However, before starting discussions, the company needed to get their house in order and get correctly prepared to avoid surprises along the way as exit processes can be time consuming and intense.

For about nine months, we worked closely with the founders on a structured exit readiness programme: we identified areas for improvement and how to best address these, developed a three-year strategic plan and a compelling equity story. A key element of exit readiness is the availability of a financial model that underpins all elements of the equity story. For a buyer, this underlines that the equity story isn’t just a “story”, but a plan backed up by detailed calculations that support the company’s strategic direction. As a result of the numerous exit processes we have been through as finance executives and M&A lead we know how to best build such a model so it will pass strict scrutiny in due diligence. In addition, the founders worked on a new organisational set-up required to support the business’ growth plans and international expansion, after which they recruited the new positions.

Approaching financial and strategic buyers

After all the prep work was done and parties agreed the company was ready, Park 56 approached a wide group of financial and strategic parties with a teaser memorandum and followed up with a conversation to sound out interest. Based on predefined criteria (industry expertise, financial resources, deal appetite, strategic fit), Park 56 presented the founders with a list of circa 10 potential parties, each of them could be a good partner to the business

Fireside chats to find fit

The founders spoke with the selected parties in fireside chats, to find out how the business was perceived and if these parties could indeed support the business through their network, funding or strategically. Soon after these meetings, it became clear that several financial parties could help accelerate the growth of the business. In addition, there would be the opportunity for founders to de-risk some of their personal wealth by selling a minority stake.

Final partner selected after another round of conversations

Based on the finding of the market testing exercise the founders agreed to sell a minority stake, monetising part of their initial investment: this was an important step as it would allow them to adopt a ’think bigger’ approach, take slightly more business risk and draw on the resources and network of an experienced financial partner with expertise in successfully scaling-up to accelerate growth.¬†In addition to the sale of existing shares, the new partner also committed to funds to support acquisitions. Contracts were exchanged one month after parties agreed on a joint business plan.

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Underpinning your equity story with a solid financial model

We have learned how critical exit readiness is for a sale process. It ensures the business stays on track and avoids a situation where all parties get frustrated.

As part of exit readiness we will build with your finance team a solid financial data pack that will pass the scrutiny in due diligence