Value creation through the lifecycle of an investment often comes from successful integration of acquired businesses. David Boyd, our specialist Consulting Partner for Integration, shares his thoughts on this.

What to do in the eighteen months before a private equity exit

I’ve spent the last 25 years delivering M&A integration programmes across private equity, family-owned businesses and listed corporates. I’ve also led a professional services business myself – brought in eighteen months before a successful exit to private equity, delivering a turnaround for the consultancy along the way. So I understand the challenges facing anyone on a buy-and-build journey, particularly when they reach that critical exit phase, and I know what it’s like to lead a team through the process rather than advise on it from the outside.

Here’s what I’d focus on in that final eighteen months.

Don’t let optionality stop you making decisions

Optionality is often a barrier to making decisions. You don’t know yet whether you’re heading for a secondary private equity buyout or a sale to a strategic acquirer, so the temptation is to wait until the picture is clearer.

My experience is that there are always clear things you can do to set the tone and make changes – actions that have a real impact on the process you go through, while keeping your options open across different types of buyer.

The question buyers ask isn’t the one you’d expect

The question for both a strategic and a private equity buyer is not really: did you do a good job growing from £50 million to £200 million of revenue?

The question is: how easy is it going to be to take you from £200 million up to three or four times that? How do you get from £200 million to £800 million, and how easy will that journey be?

And to answer that, buyers look at your track record. How well have you integrated the businesses you’ve already acquired? Is there a lot of integration debt sitting there? What state is the organisation actually in?

A strategic buyer asks a different question with the same answer

It’s the same picture for a strategic acquirer looking at you as a bolt-on. If you’re currently running ten different systems and multiple different processes, how easy are you going to be to bring into their organisation?

The questions are different. The answers, and the ways of solving them, are the same.

You’re managing perception as well as reality

For a buyer, it’s genuinely hard during due diligence to understand whether the issues are there or not. So a lot of what you’re dealing with is perception.

That means the work is twofold. You’re creating the reality – building the breadcrumbs, the KPIs, the data, the reasons to believe. And you’re also crafting a story that the buyer can get into and that the due diligence providers will accept through the sale process.

The value sits in the multiple, not the EBITDA

The value here is interesting. Rather than sitting in the EBITDA you’re posting in the run-up to exit, a significant part of it comes from the multiple a buyer is willing to pay.

I’ve seen very different multiples depending on the situation, which makes the value you can create hard to quantify in advance. But it can be multiple turns of EBITDA.

We would be delighted to discuss any of the above in relation to upcoming transactions you may have on the horizon, buy-side or sell-side, so please don’t hesitate to get in touch.