As the go-to partner for sell-side M&A deals, we see numerous approaches to exit planning, some more structured than others. We've identified these three key trends that are critical to a successful exit planning.
1. Exit Planning Starts Early in the Hold Period
Private equity firms are engaging in exit planning earlier in the hold cycle. We work with a growing number of PE firms to develop exit planning strategies as early as day one following the acquisition close, beginning with the creation of intentional approaches to measure performance metrics relative to their investment thesis and value creation plans. Very progressive firms engage investment banks upon the purchase of a business to ensure the bank clearly understands and communicates the company’s value proposition, growth journey and strategy to drive future growth as it ultimately markets the business to potential buyers. Investment banks are recommending Quality of Earnings (and Quality of Pricing – to be described later) and market studies earlier as part of a “reverse diligence.” This enables companies to prioritize areas in need of attention or immediate improvement opportunities before going to market.
2. “Data Drives Multiples”
We hear this phrase more and more frequently across our PE clients. While having clean and structured performance data (e.g., transaction data, price/volume/mix) does not directly impact EBITDA, metrics and the underlying data demonstrate commercial sophistication and provide evidence to support the strengths and growth opportunity claims put forth in the CIM and other marketing materials. Further, data structure and composition demonstrate to buyers that their value creation plan does not need to incorporate a significant time or financial investment to set the data foundation – especially in platform investments where add-on acquisitions are a key component of the growth strategy.
3. INSIGHT’s Quality of PricingSM (QoP®) for Successful Exits
QoP supports the development of a compelling and data-driven narrative for potential buyers by showcasing margin improvement during the hold period and the future roadmap of EBITDA opportunities to build buyer and lender confidence. QoP also uncovers pre-transaction EBITDA growth opportunities to quickly drive value prior to exit. INSIGHT’s dedicated data engineering team and proprietary tools accelerate the cleaning, validation and structuring of seller’s commercial data. Further, INSIGHT collaborates with investment banks to develop marketing materials and field buy-side sponsor and advisor inquiries related to historical and proforma EBITDA growth.
Learn how Quality of Pricing is a key factor to successful exits.