RSM Ireland

Exiting Stage Left? Just make sure you’re financially fit before you do

When John Glennon, Managing Partner of RSM Ireland, took to the stage to introduce an afternoon of speakers and debate on Planning for the Future and Maximising Value, he had one key message for all in attendance – “If you’re building value with the intention to sell the art of negotiation is relevant”.

What Glennon meant by this was the skill of making plans well in advance of departing or selling a business, namely extensive preparations, is part of the negotiation.

“The art of negotiation starts many years before you even sit down at the negotiation table,” he advised, citing one RSM Ireland client who did just this by switching the computer system they were using to the one compatible with that of the target buyer. This level of thinking ahead meant that when it came to the exit the transition for the new buyer was far smoother because of the forward thinking put in place by the RSM Ireland client.

“Even if your intention is to sell your business there’s always an imperative to build and grow your business,” added Glennon.

RSM client, Tom Tierney, a chartered accountant and Director of Lifes2Good, a thriving Irish business that disposed of an aspect of the company for €150m, has lived and breathed that process and he shared this on the day. Now a non-executive director of Lifes2Good, a non-executive director of Metis Ireland Ltd, and his own advisory consultancy business, Tierney is adept at the art of negotiation.

“The journey of Lifes2Good is an interesting one,” he said. The company was founded by James Murphy in 1997 and I joined him in September 2007 and within a month we were forced to take a decision to cease 75% of our business, because at that stage it was primarily a distribution business and it turned out that the distribution rights were being infringed, with questions also over the supply of the product , we were really facing down the barrel of a fairly serious gun.

“But it was a seminal moment because we were forced to take a fundamental decision if we were to stick with the core values of our business. There was a product on the market with our name, with our box, that we didn’t supply, and we said ‘we’re not sending any more of this’ so we ceased with it and went after the supplier legally and looked for an alternative solution to serve the market.

Having considered a few options, we flew to Helsinki in December 2007 and did a deal to acquire Viviscal (the original product) and we went from being a distribution business to full-blown ownership of our own product. We now had our own recipe, our own ingredients and our own clinical trials and we basically hit the reset button. We bought it in 2007, it had a turnover of €900,000 across the world and we sold it in January 2017 for €150m having built the Revenues to €50 million in 2016.

How does one prepare to exit a business? According to Emma Cadden, RSM Ireland’s Transaction Advisory Services Director, who delivered a presentation on the subject at the conference in Dublin’s Hilton Hotel, the trick is to know your value and put planning into practice.

“For the company planning to sell or set in motion a succession plan, timing and planning is everything,” she said. “When you sit down to do your initial evaluation and preparation, ask yourself the following: What are the reasons for the sale or transition of the company. How strong is the company’s historic and projected financial performance? Do you know the operating metrics and sustainable profits and growth? What is your market position or customer base? How strong is the management team?”

Tierney agreed: “What I would say is that we were a bunch of Irish guys based in Galway and we made this product the number one hair loss supplement product in the world. Our mission was to sell products we believed in   and grow the business to a level which would interest a major player in the sector in acquiring it. We always saw our exit strategy as being a trade sale. Our success was built on the people and the team we had grown and developed in the company”

Due diligence is one of the steps that will expose any cracks when the perspective buyer probes more deeply into the company. Cadden said that every business exiting the market should pay heed to every nook and cranny within the company to include issues impacting the quality of earnings such as revenue recognition, margin analysis, EBITDA adjustments and operating risk analysis.

“As well as quality of earnings, a business should consider potential balance sheet implications,” she said. “Essentially, it’s about leaving no stone unturned.”

Tierney said a key element of the due diligence for the sale of an element of Lifes2Good involved having the necessary structures in place to meet different global regulations.

“When the buyer comes in and pulls back the sheets, that’s when the reality of selling or exiting starts,” he said. “In our case we started planning for this process of disposal as early as January 2015 and it sold in January 2017, so that was a two-year activity programme. The first year was teeing it up and making sure all elements of the business was ready the second year involved identifying and pitching to potential buyers and eventually going through a formal due diligence process for the second and third quarters of 2016. Due diligence was about making sure all the pieces of the jigsaw were in place and avoiding any reason for the potential buyer to reduce his offer for the business.

 

Article by Siobhan Maguire, Business Journalist, http://www.talkwrite.ie/

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