Exit preparation

Why is this important?

With purchasers paying higher exit prices for companies, they are devoting less attention to average industry multiples and flashy IMs - and more attention to the ability of management teams and the organisations they lead to scale, innovate and execute growth plans. Consequently, the boards of businesses looking to sell need to pay greater attention to the effectiveness of their management and organisational underpinnings.

That logic has led more companies to carry out reviews with the following objectives:

1. Look with buyers’ eyes to anticipate potential red and amber flags which might impact pricing or even reduce the likelihood to transact – and how those could be resolved or mitigated over the subsequent months.

2. Create a digestible roadmap of changes to enhance the ability of the organisation to execute its growth strategy.

3. Increase the confidence of the management team to present their plans robustly and answer likely challenges, giving them more influence over the direction of changes during and after the transaction.

Those objectives are very pertinent because many of the companies we encounter during transactions have clearly grown their activities beyond a point of comfortable control – creating the need for catch-up but also making the quick wins highly likely.

What is difficult about this area?

Especially during periods of sustained growth, it is easy for executive teams and boards to lose touch with the effectiveness of the team and organisational arrangements in place.

That is especially the case because there are no obvious KPIs in this area, so much of what is happening – for good or not – is either invisible or based on gut feel. Unlike the main functions of the business, it is rare for anyone to have an explicit mandate to oversee and improve organisational effectiveness. Consequently, when preparing a business for sale, team and organisational scalability can often be a blind spot.

How do investors and boards achieve success in this area?

The two main needs are:

• To gain visibility of the effectiveness of team and organisational workings.

• Ensure that action to address necessary improvements are explicitly owned by the senior team or named individuals with sufficient heft that they can fight for better outcomes even while commercial, operational, and financial priorities consume most management attention.

Where actions cannot be carried out within the transaction preparation period, or require additional funding, greater visibility can allow appropriate language about future plans to be spelled out coherently and credibly.

How can Catalysis improve outcomes?

We have built tools to make team and organisational arrangement and outcomes easily visible to boards and leadership teams.

Supported by discussions with senior team members and selected members of the second tier, we can carry out a light touch ‘dry run’ of a management due diligence process. We then typically feedback via a short form report and an interactive workshop around key themes with recommendations to address anything which is likely to raise question marks or reduce perceived value in the eyes of potential buyers.

The results can be found both in follow-on actions as well as language which can be used in an information memorandum.

Our track record

Our main qualifications for this kind of work are both our very extensive experience in carrying out management and organisational due diligence as well as our work supporting team, organisational and strategy development. Since 2021, that has become a separately identified type of work as clients have asked more explicitly for support on it.