by Tony Nimac (Head of KPMG's Private Enterprise group in Sydney)

Many businesses will undertake an acquisition or sale transaction at some point during their lifecycle.  Whether seeking inorganic growth through acquisitions of other firms, raising capital or exiting the business via sale or Initial Public Offering (IPO), transactions are an important option that is available to businesses and their owners in pursuing their strategy and achieving their goals.

In planning for transactions, it may be tempting to wait until specific options are identified before commencing preparation as more often than not, these transactions may seem to be something that can happen ‘down the track’.  The disadvantage of this approach is that becoming transaction ready is unlikely to happen quickly.  A lack of preparation increases the risk that transactions, once identified, are not completed on the business’ preferred terms or are aborted.

Understanding the rationale, both financial and (in certain instances) personal, for wanting to execute the transaction is fundamental, as this will set the tone and direction during the course of the process.  Proper planning of the transaction process will also assist you in ensuring you meet the transaction objectives.

Some practical actions business owners can take to be transaction ready include the following.
Document a clearly defined and well thought out purpose and strategy

An essential part to understanding and communicating the business’ purpose and strategy is to identify what the value drivers of the business are.  Some common value drivers include quality and reputation of the business, cash flow and profitability, customer relationships, intellectual property (patents, brands, customer lists), technology, people and intellectual capital.

In the event of a sale, the next step after identifying the value drivers is to assess their respective strengths and plan for actions that need to be taken to enhance them, for example improvements in the capabilities of the management team.  Take a step back and look at the company from the viewpoint of a prospective buyer or engage the services of a third party to perform an independent assessment.

Focus on having a reliable and competent management team
Having an excellent and self-sufficient management team in place does not only help to ensure successful operations on a day-to-day basis, but will also prove to be vital during a transaction.  The management team play a pivotal role in the transaction process as they are able to provide valued input, collate the necessary information and potentially interact with other parties involved in the transaction.

Ensure that robust financial information is available
Serious buyers or investors will want to thoroughly examine every aspect of the business before agreeing to sign on the dotted line, and it is in their best interest to do that! To facilitate this and also to make a good impression during a transaction, at least 3 years of past financial information (devoid of any irregularities) with properly prepared financial statements and tax records should be available at any given time.  The proper processes should be in place to capture management accounts and directors reports. Minutes should be taken of board meetings in which key discussions and decisions are clearly noted and documented for future references.

Be ready to explain your business’ past and future
Business owners and their management team should be in a position to answer the questions potential buyers or investors have in relation to the business.  These could include trends, forecast data, impacts of potential changes in the market place or regulations, and succession planning (if applicable).  These explanations should be supported by the process to capture accurate financial information (refer to the previous point).

Mitigate key risks and identify and resolve the ‘skeletons’
In addition to ensuring that financial and legal paperwork at all times remain up to date, make sure that processes are in place to mitigate the key risks facing the business, or have explanations ready if challenged on this by prospective buyers or investors.

In summary, being transaction ready may appear to be an onerous task.  The side benefit to being ready typically means you have a business structured and operating at its best which could maximise performance before the actual transaction takes place, thus helping to ensure  value is not eroded in the process. 

Tony Nimac is part of the expert panel for the Australian Institute of Company Directors’ Directing Growth Program – a one-year program that focuses on four key areas crucial to sustainable growth: risk and compliance; strategy and growth; the director journey and improving performance. Find out more >

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