The private equity exit process often presents significant pressure for any management team, and bringing in an experienced, in-house M&A professional early in the preparation stage can help to take the weight off and ensure a smoother process, enhancing value to shareholders in the long run.

An M&A interim is a valuable asset in the exit process, the linchpin of a successful transaction in today’s market. Hannah Pettitt, Independent Strategy, M&A and Exit Support Advisor explains why.

Steve Clarke, Partner in Eton Bridge Partners’ Finance Practice who specialises in providing interim M&A experts, spoke to Hannah about her first-hand experience of supporting private equity backed businesses through an exit as an interim advisor, placed by us at Eton Bridge.

M&A activity is poised to pick up, yet investors remain cautious

M&A activity in 2023 was slower, and more challenging to get deals over the line than previous years due to a combination of economic uncertainty with interest rate hikes, and geo-political factors, as well as a downward price correction on valuation of assets.

Looking ahead, interest rate cuts, a more realistic pricing of assets, and increased pressure on private equity firms to transact all mean that it is more likely that deals come to market in Q4 of this year. However, the level of scrutiny from the incoming investor is high, and Hannah also foresees greater competition for high quality assets. “Whilst a successful transaction is still possible, there is an increased need for significant pre-deal preparation and expert guidance through the process from an early stage.”

Investing in an experienced interim for long-term value

An M&A interim brings expertise, support, and the ability to provide strategic advice to the client well in advance of launching a formal exit process. The main focus of this work is to ensure the business has a clearly defined strategic vision, more often referred to as the “equity story”, that is supported by robust data points that are able to stand up to diligence, as well as determining the optimal time to go to market. The business plan forms the basis of all documents through the process (IM, diligence reports, etc) and therefore it is critical to get it right before going to market to ensure a consistent message throughout, ultimately driving value.

Hannah recently worked on an exit project for Eton Bridge Partners with a mid-market, private-equity portfolio company and worked closely with the management team to craft the equity story, whilst ensuring that it was supported by strong KPI’s. She then acted as the key point of contact through the process to both internal stakeholders (investors) and external stakeholders (other advisors, diligence providers, etc) and provided support to both the fund and PortCo which was instrumental in maximising value and delivering a successful outcome for shareholders.

“The preparation stage is more important than ever given current market conditions, and the importance of demonstrating a resilient business model alongside strong market and strategic positioning is critical.”

Hannah’s ability to identify both financial and non-financial value drivers helped to assess the exit readiness of the business and the optimal time to launch a process.

Financial drivers of value are clearly crucial, but Hannah highlighted the increased importance of non-financial levers such as market positioning, owning the customer journey, and retaining strong talent as also being a critical part of the equity story that goes out to potential investors.

Strengthening finance with interim support whilst mitigating transaction risks

The exit process places an enormous pressure on the finance function, and bringing in an additional interim specialist will help to ensure a smoother process once in market. An interim provides downside protection via ongoing support to the finance function to ensure that KPIs are accurate and presented in a digestible manner, whilst forming the basis of an ambitious, yet deliverable plan that will withstand investor scrutiny -ensuring that diligence is confirmatory rather than challenging.

“One of the biggest risks in a transaction is that the business misses the numbers defined in the business plan which will potentially lose investors’ confidence; this could have a detrimental impact on the overall process particularly in the current market where investors are even more risk averse,” Hannah points out.

Ensuring that the business delivers on the numbers through the process is critical; something that again highlights the importance of bringing in support with an interim M&A professional who can ironclad the numbers and who can be an additional resource to the finance function.

How interims can enable management teams to focus on the business

As the transaction moves into the execution stage, an interim is able to act as a ‘gatekeeper,’ ensuring a consistent equity story at every touchpoint for investors, whilst taking the weight off the management team’s shoulders and letting them focus on running the business.

Hannah commented; “I am most likely to be brought into a deal by the private equity fund rather than the management team of the asset. As the market is more difficult, it has highlighted the need to increase bench-strength; funds are more aware of this, so they are more likely to seek interim support.”

Despite being brought on board by the fund, Hannah said that it’s the relationship with the management team that is key; “You need to have excellent rapport with the management team.” She also notes that the cost of hiring an interim M&A professional is treated as a ‘one-off exceptional item’, so it doesn’t affect the company’s valuation which is something to remember when looking to hire an interim professional.

An interim M&A expert is a dedicated internal resource

Where as an investment bank acts as an external corporate finance advisor, an interim M&A professional acts as an internal corporate finance advisor. Having an internal, dedicated resource, who comes with vast amounts of transaction experience, is a valuable asset for the management team. This is particularly the case when the management team may lack deal experience.

Hannah highlights that it’s a collaborative process and that alongside the obvious M&A expertise that an interim can bring, a personal, empathetic approach is also key.

We would like to thank Hannah for sharing her insights and experience of the M&A market and the exit process in particular. The investment cycle and challenges of a transaction is something that we are familiar with here at Eton Bridge Partners as we have been on that journey ourselves, transitioning from a founder-led business to our new private equity owner Elysian Capital in 2021.

Steve supports FTSE and AIM listed, private equity backed, and privately owned businesses at any point in the deal cycle. For a discussion around your interim needs or job search, please do get in touch.

Get in touch with Steve here