- MBA Associates Limited -

Which Way To The Exit?

A Case Study - Chris Ball

MBA sees many different companies; companies of all sizes and for many reasons. Particularly challenging is the small company, often family lead where the principal has reached the point in his career where he feels he would like, or indeed needs, to exit the business. The issues illustrated by the following case study are not untypical and demonstrate that there is an alternative to ‘putting the keys back through the letterbox’

The Case of W Windows Ltd.

W was a small fabricator, selling to the trade and to retail, with an annual turnover of £2.5m. Business was consistent having been established over many years through much hard work. A single individual, under whom there was no real management structure, systems or processes, drove the company forward through, painfully gained, experience and force of personality. For years, the company provided an extravagant living for the principle’s family. As a result, there was little reinvestment in the company and its infrastructure, the business was run for the benefit of the shareholders and there was no ambition to build a business of real substance. Some time back, the principle fell seriously ill. Consequently, he was unable to manage the business on a day to day basis. As a result, sales collapsed, debtor balances soared and wastage gripped the business. Without skilled management and support systems, the business had no autonomy. The fact that certain ‘senior-sounding’ job titles were in place at the patronage of the principal could not prevent the business from tumbling out of control. A business that once provided a fine living, and created wealth was heading South in double quick time.

Companies have to be ‘put in shape’ to be attractive to a buyer and indeed some thought should be given, at the outset, as to who that buyer may be. Appropriate grooming of the business will ensure a suitor is more quickly located. A planned exit is always going to be on better terms than a precipitous exit

MBA were introduced by the system provider, alarmed by what they saw as a spiralling credit risk, and possible large bad debt. They also saw an imminent total loss of profile sales to their customer with whom they had had a long and mutually profitable relationship. After discussions and partly due to an uncertain health prognosis, the principal aired his desire to sell his interest. However his perception of the value vastly exceeded any sensible market valuation for the business. He saw the value of the business as its “potential”, a nebulous concept at the best of times. His perception of value was also heavily influenced by his desire to maintain a certain standard of living. Mixing personal considerations with business issues is not uncommon, but it is a sure way to discourage trade buyers or new funders for an incoming management team.

It was clear that W could not be sold at the time for a sum that would meet the principal’s requirements. An exit strategy including succession planning was required urgently. The implementation of a development strategy was required to enable the company to recover its position in the market, return to profitability and begin to add real value for the shareholders. This involved installing skilled management; reinvesting in infrastructure and systems and taking some tough decisions, which challenged the established culture of the business. The owner was persuaded to persevere, although with little day to day involvement, and to support the business financially for a further period of time. Fortunately the Systems Company, the principal creditor, was also prepared to help, largely on the basis of a long established business relationship and the strength of certain key personal relationships.

A Business Synopsis audit was carried out, examining all areas of the business and evaluating its strengths and weaknesses. After consideration of the product markets in which W was active, a developmental Business Plan was formulated. This detailed plan dealt with the thorny issues of resources as well as placing a timetable to events and specifying significant milestones that would be capable of measurement.

Part of this strategy was a succession plan. As the business was almost wholly dependant on a single individual, the plan made sure that this mistake was not repeated. In this case a certain amount of interim management was required to bridge the gap between the ‘old’ and the ‘new’. Another priority was the implementation of systems to efficiently convert sale orders into works instructions and those instructions into deliverable product. The plan also included the recruitment and training of people to implement and operate these systems. MBA managed this transition and development for W.

The Vendor achieved an acceptable capital sum, and the buy-out team has an opportunity to chase their ambitions as part owners of their employer. On that very satisfying note, exit stage left.

Once the business was stabilised, MBA re-valued the business as a stable and marketable, profit-making asset, which delivered acceptable returns and clearly had potential. The incumbent management, some of whom had been recruited with a purchase in mind, was prepared to offer a sum that was acceptable to the principal and for which they were able to raise the required finance. The vendors agreed to defer some of the consideration to facilitate the deal.

MBA’s involvement has been long term, and indeed the process is not a quick one. The decision to exit should ideally be taken some years before the planned sale or handover. Companies have to be ‘put in shape’ to be attractive to a buyer and indeed some thought should be given, at the outset, as to who that buyer may be. Appropriate grooming of the business will ensure a suitor is more quickly located. A planned exit is almost always going to be on better terms than a precipitous exit. A venture capitalist, for example, will want to know what the exit plan is before they make an investment – if its good for them, then why not for principals.

The benefits of persevering in this case were clear; the Systems Company had no bad debt or loss of volume and retained a customer that was intent on growing. The Vendor achieved an acceptable capital sum, and the buy-out team has an opportunity to chase their ambitions as part owners of their employer. On that very satisfying note, exit stage left.

Which Way To The Exit?
© Chris Ball January 2020

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MBA Associates Limited

MBA Associates Ltd is a specialist consultancy that partners clients to Recruit, Retain and Develop Top Performing Teams. Using sophisticated and proven methods that are different to the usual recruitment agency MBA has an enviable track record of Job Matching with currently over 76% of candidates recruited are retained after one year (statistics from Harvard Business review show 14% success rate is average on CV alone!)


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