Broadly speaking, what buyers have been looking for in a business has not materially changed over the past decade – strong cash flow, growth potential, synergies, etc. However, changes in technology, the interest rate environment, and continued economic uncertainty have made it imperative for business owners to shift how they prepare for an exit process.
While these preparation considerations should be in place before the sales process starts, evaluation of these considerations occurs during the pre-LOI and due diligence phases as buyers continue to assess investments with greater scrutiny and smaller margins for acceptance. How do the latest trends in key considerations compare to traditional approaches?
| Traditional Considerations | Trending Considerations |
| Cash Flow Positive Focus: | Cash Flow Resilient Focus: |
| – Upward trends and a track record of strong revenue and cost management. – Opportunities for expansion with positive cash flow potential. – Working capital management, although lacking in granular data visibility. |
– Enhanced revenue predictability through longer-term contracts. – Clear vision and strengthened market leadership in core products/services with tangible ROI. – Active use of company data (including BI and AI) for visibility into cost levers and enhanced CAPEX management, yielding higher returns. |
| Management Focus: | Enterprise Focus: |
| – Retention of key personnel. – Ability to articulate management’s role in support/transition post-close. |
– Defined succession plans for key roles. – Capability to manage company culture and mitigate perceived negative impacts from a sale. – Effective management of remote workforces. |
| Technology Opportunities for Improvements: | Already Technology-Fluent: |
| – Operating with older/multiple ERPs. – Basic cyber focus, primarily endpoint and firewall protection. |
– Efficient ERP/operational systems or a well-articulated cost/benefit upgrade plan. – Proactive cyber testing, remediation, and advanced protection (measures to prevent, detect, and remediate). |
Dry powder continues to accumulate while exit activity remains subdued. Historically, this capital will eventually need to be deployed, but with heightened buyer scrutiny, it’s crucial for company and firm managers to focus proactively on what matters now. Regardless of whether a sale goes through, there’s a silver lining for sellers who prioritize preparation: well-executed measures can not only enhance the sale price and streamline the transaction process but also position the business for future growth and scalability.
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