High-multiple exits, start with the end in mind

Pulling together insights from PepTalks’ 2022 Conference panel discussion, Graham Donoghue (CEO, Sykes Holiday Cottages), Tim Clover (CEO, Rayner) and Lisa Stone, Portfolio Chair of several PE-backed businesses) share their strategies for achieving high-multiple exits.

In this article we’ll explore their practical tips to address key topics where focus and cohesion help ensure high returns:

  • Exit narratives
  • People and process
  • Value drags and drivers
  • Buyer landscape
  • Timings

Set the exit narrative early

Every Private Equity-backed business is governed by the timing of the investment cycle, so keeping a clear eye on the end game is vital. Graham typically works with a ten year horizon, setting financial targets and identifying the actions needed to achieve them:

“It’s about storytelling, working out that key investment thesis really early on and then working out what you need to do to drive it there.”

For Lisa, it’s crucial to go further – not just shaping out your exit narrative, but looking around at all the potential types of buyers to identify who is the best fit. Developing a dashboard to measure all the metrics, across all departments, that will demonstrate successful growth and business quality (low risk and high opportunity) then becomes easier:

“You try and map out what might the buyer universe look like at that point. You then need to map back to the plan and what you’re going to measure along the way that is going to make it really easy for a buyer to say, ‘show me all the proof points that all the things you’re telling me are right’.”

Ironically, simply managing the business with the sole aim of maximising returns on exit can actually end up reducing the multiple. Focusing only on the final numbers runs the risk of alienating suppliers, customers and clients if product quality, pipeline delays, price hikes and customer service suffer as a result. Any business relies on people buying its products and services and so for Tim:

“I think there’s always a danger in our world that we’re running a business for an exit. I don’t, and never have, and don’t want to in the future. I grow the business for the employees, and in our case for patients, and I want to do great science and create great jobs.”

Don’t underestimate the importance of your purpose

At Sykes Cottages, growing the business as market headroom decreased meant acquiring other types of holiday businesses. Merging, expanding and diversifying are common ways to grow a business, but Graham knows it’s vital to ensure that there is a unifying ethos of the whole organisation:

“That’s taken us on a real journey in the last 24 months, really thinking about the people we hire, thinking about the types of individuals we hire, thinking about our commitment in terms of giving back, thinking about how we think about environment, social and governance.”

This purpose should shine through every role within the organisation, shaping activities and objectives from the inside out, rather than simple being bolted on. A sound purpose that runs through the core of a business boosts recruitment and retention, helps communities and the environment and drives profit – everybody wins.

Scoping out the buyer landscape

There are two types of potential buyers: trade and non-trade. With the former it’s perhaps easier, as your team will already have professional relationships with key contacts. Lisa’s experience has been that with Private Equity it’s important not to be rushed into decisions and meetings. But when the time does come:

“You want to try to identify the half dozen partners that you think would be best for you. They’re the right size, they’ve got the right industry knowledge, they’ve got the right cultural fit and attitude, you think they would go on the journey with you. Then start to build those relationships in the second half of the ownership cycle so that trust exists when you get to the endpoint.”

Communicating your business values, potential and USP far and wide clearly helps to broadens the buyer pool – the more investors that know about you, the greater the number that will want to invest. You can then choose the best fit. This may mean not signing with the PE backers who offer the most money if their approach does not dovetail with your own. As Tim concludes:

“There’s no doubt relationship leads to conviction. These organisations for sure are having origination meetings, pipeline meetings, and if your name’s on those slides over a one, two year period, I think it makes the process easier.”

The same is true for financial advisors too – identify a few potential candidates early on and speak with them honestly, the right ones will generally offer advice and support before any cheque has been written. For Tim:

There was actually very little difference between any of them on the day I think, it came down to relationships again.”

Building great relationships is a lengthy process, but Lisa believes that you get out what you put in:

“Just make the production at the end as painless as possible, because you’ve been on a journey. The business is evergreen, the exit is just a moment in time and you’re at a roundabout when most likely someone’s getting off and someone’s getting on.”

Practical tips for achieving high-multiple exits

Distilling down all their experience into one top tip, the panellists each gave their one must-do:

  • Graham advocates demonstrating the talent within your organisation – let your potential buyers talk to people and feel their passion for the business
  • Lisa stressed the importance of preparedness – building relationships takes time
  • Tim believes in the power of the elevator pitch, distilling down what you do into one killer summary

So there you have it, the lowdown on high-multiple exits. There’s much more support and training for PE-backed executives in our Knowledge Hub. If you’re not already a member of PepTalks, you can find out more here

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