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Paul Dallibar

How Not to Prepare an Exit Strategy

One of my first exit strategy assignments, after starting my own business advisory service, was working with an SME printing business, based on the south coast of England. The directors had requested a strategic review of their operations, a sort of business health check report, to be used in selling their business. They were confident that there were no issues to be addressed, but wanted some reassurance that any due diligence would sail through.

Within a very short time of starting the review, about twenty minutes into stating a structured questionnaire, we had discovered that Pareto’s Law was alive and well in this business. There were about 25 sizable customers, but five of them (20%) supplied over 80% of the turnover! I asked if written contracts being in place with those customers, but there were none.

It appeared the relationships with those five customers were based solely on personal relationships, developed over the years, between the Managing Director and his Finance Director and key individuals from the customers. Everything was done on a handshake and a promise. To make matters worse, there was no evidence that any other members of the business had ever met with these key accounts and any decisions were always deferred to the directors.

A valuation for the business had been made by their accountants and was based on current profitability and the directors were looking forward to receiving this sum and enjoying a retirement in warmer climes.

The way key clients were dealt with was only an example. There was no succession plan, no clear processes and no proper decision making outside of the main board directors. At the end of my review, the main conclusion was the business had a high degree of risk and, in my opinion, there was no real possibility of attracting multiple offers or selling it for the current valuation. Who would buy the company when there was no secure pipeline of new business or replacements for the directors from within the business? Remove the Principals and there was no business!

There might have been someone might be prepared to buy, but surely they would need to tie down the management with some form of “golden handcuffs” and none of the directors wanted to stay on after a sale.

Unsurprisingly the review was not included in the sale documentation. However, it was a surprise to me that the business was sold within a year and with the key players exiting the business.

Two years later the business ceased to exist and fifteen people lost their jobs.