Exit attempts are numerous – but successful exits in later stages are far rarer. Clevershuttle, relayr and Finanzcheck.de demonstrated this last year and are just some of the successful examples from Germany. However, corporate sales don’t always go as well as they did for Eschborn-based energy service provider Techem. In 2018, it was sold by Macquarie to a consortium of private equity investors for a hefty $5.4 billion – making it the largest German exit of the year. But how do acquisitions become successful? And what tips should be kept in mind?
A guest contribution by Julian Riedlbauer, partner and head of the German office of M&A consulting and tech investment firm GP Bullhound
When it comes to corporate sales, there are basically two types: First, the sale to private equity investors, as was the case with TeamViewer, Chaltec, Magix or Infinigate, among others. For this, it is important to build a profitable and fast-growing company, as these investors aim to further increase the company’s value and resell it at a significantly higher valuation.
Second, a strategic exit to another company. The buyers are usually competitors looking to expand or strengthen their own business. While it’s also important to be growth-strong and profitable here, the focus is more on synergies and the best possible combination of the buying and selling companies. For both types of transactions to succeed, however, there are some points to consider.
Here are five tips on how to make an exit in the later company stage particularly successful.
The magic word for successful exits: trust
1) Early familiarization and relationship-building with potential buyers
Years before a planned exit, companies should establish contact with possible strategic buyers and build relationships with these potential buyers. This works best through targeted sales or product partnerships and, for example, joint events. Companies that manage to make potential buyers understand the positive synergies of collaboration achieve more buyer interest in the corporate sale. The magic word here is clearly: trust. All measures – including early personal contact and operational collaboration – are conducive to the exit process.
2) Create a positive image
A positive image in the market is a long-term goal that companies should pursue to convince investors. This includes regular press work, presentations and panel discussions at relevant conferences and events. These measures have a positive effect on the company’s profile.
Good reviews on HR portals like Kununu or Glassdoor should also not be underestimated. If companies offer products, review platforms like Trusted Shops or rankings on online shops like Amazon etc. are of great importance. Building good publicity is essential for closing an exit.
Long-term goal: stakeholder satisfaction
3) Satisfaction of customers and other important stakeholders
Another long-term goal should be the satisfaction of important stakeholders. Buyers carefully examine how satisfied the company’s customers and employees are and where potential problems lie. In addition to customers, any sales partners must also be kept in mind. Depending on the target audience, potential buyers interview key business partners and customers about their satisfaction.
In the due diligence phase – the document review before purchase – corresponding conversations take place to find out how loyal different groups are to a brand. Therefore, companies should ensure well before any intention to sell that their reference customers are truly very satisfied. Employee satisfaction is equally important. Because it’s clear: only satisfied employees deliver top performance and really drive the company forward. Additionally, excessive employee turnover does not speak well for a company and reveals structural weaknesses and management failures.
4) Revenue figures & KPIs
Extremely important for an exit are the company’s economic figures. Ideally, these should be available over a longer period and provide an impression of how successful the last few years have been. Is it a subscription or recurring revenue model? The rule is: Over a longer period of several years, recurring revenue models, customer acquisition costs, customer lifetime value (CLV), churn and margins are monitored and traced back by potential buyers. So-called cohorts are formed and observed to see how they develop over time.
Keep your metrics under control
For one-time sales, the so-called “repeat purchase rate” is of crucial importance. It shows potential buyers how loyal the company’s customers are. For all business models, the NPS (Net Promoter Score) metric is increasingly becoming established as a measure of customer satisfaction and recommendation rate. This metric should be systematically collected.
Exit candidates should therefore have the presented KPIs under control, and not just in the current fiscal year. Datasets should be built and tracked accordingly over several years. This also helps the company, independent of an exit, to increase customer satisfaction.
5) Company growth
It is deadly for the sales process if the growth of the company being sold unexpectedly slows significantly or if earnings deteriorate. Therefore, it is necessary to perform above budget before and during the sales process. It’s important to know: During due diligence, buyers usually also request protocols from shareholder meetings or board meetings from recent years.
Therefore: Any shortcomings should certainly be communicated to the bodies over the years and recorded truthfully in the minutes, but in an appropriate manner. At the same time, future growth potential should be particularly emphasized. The rule of thumb: the glass is always half full!
Successful exits are achieved by adhering to the key factors
In summary, it can be said that a sales process – whether a strategic exit or a sale to private equity investors – should be well thought out and professionally managed. Success depends essentially on various factors such as team composition, highly professional documentation, negotiation skills and a structured process with a precise timeline aimed at creating competition among potential buyers. Besides experience, sufficient time and appropriate focus from the management team on the sales process are crucial. Then nothing stands in the way of a successful exit.
About the author
Julian Riedlbauer is partner and head of the German office of GP Bullhound. The globally operating M&A consulting and tech investment firm GP Bullhound advises both companies and founders and investors in the areas of mergers & acquisitions (M&A) and growth financing.
Before taking over the leadership of the German office, he was managing director of Corporate Finance Partners, an international financial consulting firm with a focus on internet, media and technology. Prior to that, Julian Riedlbauer worked as a manager and entrepreneur in the IT and internet market and completed various transactions as a client of consulting firms.
