Archive for the ‘Exit Strategies’ Category

Preparing for the Exit – CEO’s Need to start Early

Monday, March 8th, 2010

The “when” and “how” of the exit stage of a business poses one of the biggest opportunities and challenges for a software company CEO. Unfortunately, many address the exit much too late – and often only when they get an acquisition offer that forces them into a reactive mode, wondering if the offer at hand is the best outcome for shareholders. This failure to adequately assess the time and preparation required for a successful exit can result in substantial value being left on the table or worse – an unsuccessful outcome. Yet this does not have to be the case. The outcome of an exit event can be dramatically improved by adopting some key strategies well in advance that prepare the venture to be both appropriately positioned for exit and ready to act when dictated by industry shifts and/or consolidation events.

Some of the major activities that should be handled 18-24 months in advance of an exit event or engaging an investment banker include the following:

  1. Start the Due Diligence Process – ask your counsel for the most exhaustive due diligence list they have.   Narrow it down for your company and start collecting the information well in advance.  Put all the documents into an online repository – thsi process is extremely time consuming but if you start it early you can chip away at it when you have free cycles.
  2. Develop your Pitch Deck – start assembling your PowerPoint pitch that you would make to a prospective buyer.  Break the deck into sections that correspond to your organization.  As you build the materials, you will identify gaps that you can fill in to solidify your position, promote your strengths and solidify your value.
  3. Map the Ecosystem – gather analyst reports on your market from reputable 3rd parties.  Understand the tangential solutions to your domain and create a visual diagram to represent the playing field.
  4. Score the Ecosystem – once you have identified all the players, dig deeper and look at how each of the players in the market would “fit” with your company.  We recommend scoring analysis in which you can rate each companies fit with your company based on technical, sales and financial metrics.  The laborious process now begins – start filling in the detail for each.  Be consistent in teh scoring approach and look beyond the obvious.
  5. Concentrate on Alliances – if you are not paying attention to alliance efforts with partners, you need to start.   You need to align with the top ranked partners in the ecosystem and build a relationship with them.  Enter into either a technology, marketing or sales partnership alliance.  Remember potential suitors normally buy companies that they have worked with in the past.

Ideally, you should be in the market when the sector is “hot” or a few of the top companies in the ecosystem are at the top of their game.

Many CEO’s are concentrated on the core business operations and spend too little time on these activities in advance or don’t prioritize these activities until they engage an investment banker.

Proper preparation, strategic assessment and alliance initiatives are necessary in advance and will have a material impact on valuation – so start well in advance!