Episode 6: Exit preparation – are you ready?

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Episode 6: Exit preparation – are you ready? 

Advice and insight at every stage of the Private Equity lifecycle

Continuing our series through the PE lifecycle, with a focus on driving growth and putting the strategy into action – leading up to an exit event. This episode sets out the key points to be considered when an inevitable exit event is expected – How can a Private Equity Business prepare?

Deloitte’s private equity specialists work with businesses throughout the PE lifecycle and beyond.

This series of publications highlights the key points to be considered at each stage of the lifecycle, paying particular attention to how to effectively manage assets and add value ahead of an exit.

Preparing for an exit – are you ready?

In Episode 5, we looked at how to get back on track when the strategy for the business needs to be revisited and refreshed. Having reset, a PE-backed company may establish a new 5 year plan to drive growth in the face of new challenges, such as a different economic climate, with a new financing package, or through pivoting into new markets and opportunities.

 

This all leads to the exit stage of the PE lifecycle. As the exit of investors is an inevitable part of a successful PE-backed business’ lifecycle, it should be front of mind. You need to prepare, both to ensure an efficient process and to add value on exit.

 

There are various ways in which an exit event may occur, but the most common are; secondary PE buy-out, corporate deal, or IPO. The route taken by PE investors may impact the exit process, however. Below are some of the key points that should be considered as a business prepares for an exit event:

  • Understand the likely exit route and the flexibility of the current structure. Will the business need to undertake any pre-exit restructuring? What are the tax and accounting implications of doing so, how far in advance should this be done, and how will the business’ systems and workforce deal with any changes?
  • Complete an exit readiness review – this should cover financial, tax and legal aspects. This can be completed prior to a vendor or formal due diligence process. An exit readiness review seeks to identify assets within the business and highlight any exposures. We recommend any tax assets or exposures are documented, supported or addressed in advance of a formal process. This exit readiness exercise will enable the PE-backed business to understand where there is scope to add value, and address any issues that might otherwise disrupt the formal process.
  • Seek to understand any vendor/management tax issues on exit, in order to ensure they are effectively managed and/or communicated throughout the process, and built into any pricing mechanisms.
  • Consider whether a change of accounting standards will be required – for example, a transition to IFRS. Factor this into the timeline of the exit process.
  • Articulate a robust business growth story, supported by evidence - this is a critical part of the exit process. Analyze where the risks are and where the opportunities lie to ensure that this narrative is as solid as possible.
  • Plan resources ahead of time. It is easy to underestimate the burden that an exit process places on the finance team, and having strong and robust financial data is key to highlighting the strength of the business. At the same time, you need to ensure that the business can keep operating – that may require hiring additional resource to focus on an exit.  

Our specialist team provides advice to PE-backed companies, helping management address challenges faced during, a typically unplanned, mid-cycle refresh. If navigated appropriately, a business can continue to thrive and grow as it moves closer toward an exit process.   

We understand this can be a new challenge for many businesses, especially after the intensity of a transaction. We offer our expertise and guidance to support businesses as they begin their journey on the PE-Backed lifecycle.

Follow our ‘Private Equity Backed’ episodes or contact Dirk BakenLucy Small, or Sjoerd Hasselmann.

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