The ultimate goal of many entrepreneurs is selling the business they have built. Many of those who manage it successfully have been thinking about that moment since starting up. It's a crucial turning point which puts years of hard work and sacrifice into perspective.
That's why we weren't surprised so many people turned up to hear advice from Fiona McMahon, who is an Investment Manager at private equity firm ECI Partners. She was one of the speakers on the panel at the latest Workspace Business Insights Breakfast, 'How do you value your business?' held at One Sixty Fleet Street earlier this month.
After spending five years at PwC in Corporate Finance, Fiona joined the ECI team in 2013 and has worked on investments in MPM Products, Avantia, ATG Media, Investis, Tusker, Evans Cycles and CarTrawler.
On the panel, Fiona highlighted her work with the team at MPM Products, a premium pet food business in ECI’s portfolio. ECI invested in their business for a few reasons: there was high growth - they had a strong track record of listing in new retailers, as well as strong growth within existing retailers. There was also good 'resilience' built into the business, with strong repeat revenues as well as the pet food market continuing to grow during the last consumer downturn. Crucially, there was also a very strong management team.
At one of the initial meeting, Fiona described how the CEO of MPM opened a can of cat food in front of everyone, and popped a chunk of it into his mouth to show investors how premium his product was.
So, if you're considering selling your business – and don't want to start eating pet food – what factors should you consider when assessing its value?
'It depends on the life stage,' says Fiona. 'We tend to invest in businesses from £15M upwards and are typically focussed on EBITDA and cashflow multiples.'
Another factor is also who is buying the business e.g. a trade or PE-backed trade buyer may get the benefit of synergies, although private equity frequently value high quality businesses at premium prices as well and are able to move quickly in a sales process' explains Fiona.
In terms of IPO, there are a similar set of requirements in terms of growth, resilience and strong cash flows.
It’s also important to be of sufficient scale to enable liquidity in the market going forwards.
So what's her biggest tip then for any business thinking about selling, however far in the future, and maximising their value? Fiona stresses: 'You can't underestimate the value of preparing businesses well for sale.'
Looks like, judging by the turnout, that lots of Workspace customers are already doing just that.
Workspace Business Insight Breakfasts and Dinners are organised in collaboration with Knowledge Peers. They are designed to be an interesting mix of ‘live’ case studies of senior directors from New and Growing Companies (NGCs) who have encountered a relevant challenge, together with Q&A with industry experts. Directors, founders and other senior leaders from customers across Workspace’s portfolio are invited to attend this complimentary event.
For those that cannot attend, we stream the panel discussion via a Facebook Live broadcast. Stay tuned to our Facebook page for more information.
Follow @workspacegroup and @knowledgepeers for up-to-date information.