There are some exit attempts – successful exits in late phases, however, are far rarer. Clevershuttle, relayr and Finanzcheck.de demonstrated this last year and are just a few of the successful examples from Germany. However, company sales don't always turn out as well as the one for the Eschborn-based energy service provider Techem. In 2018, Macquarie sold the company to a consortium of private equity investors for a whopping $5.4 billion. This deal made it the largest German exit of the past year. But how do acquisitions become successful? And what tips should be kept in mind?
A guest article by Julian Riedlbauer, Partner and Head of the German office of the M&A advisory and tech investment firm GP Bullhound
When it comes to company sales, there are basically two types: First, sales to private equity investors, as was the case with TeamViewer, Chal-tec, Magix, and Infinigate, among others. For this, it is important to build a profitable and fast-growing company, as these investors aim to further increase the company's value and resell it at a significantly higher valuation.
The other option is a strategic exit to another company. The buyers are usually competitors looking to expand or strengthen their own business. While being fast-growing and profitable is important, synergies and the most sensible combination of the buying and selling companies are more important. However, there are a few points to consider for both types of transactions to be successful.
Here are five tips on how to make an exit particularly successful in the later stages of a company.
Magic word for successful exits: trust
1) Getting to know and building relationships with potential buyers early on
Companies should contact potential strategic buyers and build relationships with them years before a planned exit. This works best through targeted sales or product partnerships and, for example, joint events. Companies that succeed in clearly demonstrating the positive synergies of a collaboration to potential buyers achieve greater buyer interest in the sale of the company. The magic word here is quite clear: trust. All measures—including personal contact as early as possible and operational cooperation—are conducive to the exit process.
2) Create a positive image
A positive market image is a long-term goal that companies should pursue to convince investors. This includes regular press work, presentations, and panel discussions at relevant conferences and events. These measures have a positive impact on the company's brand awareness.
Good reviews on HR portals like Kununu or Glassdoor should also not be underestimated. For companies offering products, review portals like Trusted Shops or rankings on online stores like Amazon, etc., are of great importance. Building good publicity is essential for completing an exit.
Long-term goal: Stakeholder satisfaction
3) Satisfaction of customers and other key stakeholders
Another long-term goal should be the satisfaction of key stakeholders. Buyers closely monitor the satisfaction of customers and employees, as well as the company's employees, and identify potential problems. In addition to customers, potential sales partners should also be kept in mind. Depending on a company's target audience, potential buyers interview key business partners and customers about their satisfaction.
During the due diligence phase—the pre-purchase review of documents—consultations are conducted to determine how loyal different groups are to a brand. Therefore, companies should ensure that their reference customers are truly satisfied long before they intend to sell. Employee satisfaction is equally important. It's clear that only satisfied employees deliver top performance and truly advance the company. Furthermore, excessive employee turnover is a negative sign for a company and reveals structural weaknesses and management errors.
4) Sales figures & KPIs
The company's financial figures are extremely important for an exit. Ideally, these should be available over a longer period of time and provide an impression of how successful the company has been in recent years. Is it a subscription or recurring revenue model? The following applies: Over a longer period of several years, the recurring revenue model, customer acquisition costs, customer lifetime value (CLV), churn (price losses), and margin are monitored and tracked by potential buyers. So-called cohorts are formed and their development over time is observed.
Keeping key figures under control
For one-time sales, the so-called "repeat purchase rate" is crucial. It shows prospective buyers how loyal the company's customers are. Across all business models, the NPS (Net Promoter Score) metric is increasingly gaining acceptance as a measure of customer satisfaction and recommendation rates. This metric should be collected systematically.
Exit candidates should therefore keep track of the KPIs presented, and not just in the current fiscal year. Data sets should be built and tracked accordingly over several years. This will help the company increase customer satisfaction even independent of an exit.
5) Business growth
It's fatal for the sales process if the company being sold experiences an unexpectedly significant slowdown in growth or a deterioration in earnings. Therefore, it's essential to perform above budget before and during the sales process. It's important to note that buyers usually request the minutes of shareholder meetings or board meetings from the past few years during due diligence (i.e., the review of documents).
Therefore, any shortcomings should, of course, be communicated to the committees over the years and recorded truthfully in the minutes, but in an appropriate manner. At the same time, future growth potential should be highlighted particularly clearly. The rule of thumb: The glass is always half full!
Successful exits are achieved by adhering to the essential factors
In summary, a sales process – whether a strategic exit or a sale to private equity investors – should be carefully thought out and professionally managed. Success depends largely on various factors, such as the team constellation, highly professional documentation, negotiating skills, and a structured process with a precise timeline designed to create competition among potential buyers. In addition to experience, sufficient time and a corresponding focus on the sales process by the management team are crucial. Then, nothing stands in the way of a successful exit.
About the author
Julian Riedlbauer is a partner and head of the German office of GP BullhoundGP Bullhound, a global M&A advisory and tech investment firm, advises companies, founders, and investors on mergers and acquisitions (M&A) and growth financing.
Before taking over the management of the German office, he was Managing Director at Corporate Finance Partners, an international financial advisory firm specializing in internet, media, and technology. Prior to that, Julian Riedlbauer worked as a manager and entrepreneur in the IT and internet market and executed various transactions as a client of consulting firms.
