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De-Risk while maximising business value in retail

Recent figures released by the central statistics office (cso) show that retail sales in Ireland continue to increase with volumes and values in September 2018 up 6.5% and 5.8%, respectively, when compared to the same period in 2017. At a time when consumer sentiment is relatively strong, it may be time for retailers to look internally to build on this positivity with a view to turning it into real value and potentially developing an exit strategy for the business. What are the key pre-transaction activities which a business owner can undertake to enhance value and at the same time potentially de-risk the transaction from a purchaser’s perspective?

In the absence of a known purchaser it is difficult to address all of the potential concerns that a purchaser may have. In practical terms, determining an exit strategy is a means of running the business in a manner which will maximise value, achieve the owner’s personal and financial goals while delivering a potentially higher return for a purchaser. In the first instance, a comprehensive and honest review of the business is required to understand its key components and how they impact on or contribute to value. In addition, an assessment of where the business stands relative to comparative companies who are perceived to be “best in class”, or where the company is compared to the market in general, is important. It may be difficult for an owner to be objective in this assessment and independent advice may be of benefit. Regarding valuation, an owner’s perception of value compared to actual value achievable may be very different so in assessing how to enhance exit value it is important to understand the value of the business today and how that typically gets realised in a sale of the business. This will highlight the areas to focus on to de-risk an exit and enhance ultimate value. Each business will have to adapt its strategies to suit its own particular circumstances but specific focus areas include:

  1. Contracts – where relevant ensure there are signed contracts in place in relation to key relationships, particularly to do with suppliers, agencies, franchising, etc. Determine if there are onerous clauses which may become enforceable if the business is sold, what consents may be required and a clear strategy on how to best deliver such consents.
  2. Employees – every business has key employees who are critical to the successful operation and growth of the business. On an exit, key management have to be incentivised and motivated to deliver the necessary growth in the business which will ultimately enhance value. This can usually involve an enhanced role in the business going forward and potentially a share in any earn-out arrangement aligned with the owner’s exit ambitions.
  3. Financial information – ensure that financial information highlighting the performance of the business is readily available and in the right format. If you cannot demonstrate that you have a good control on the financials of the business, it will delay the process.
  4. Move fast – deals are taking longer, diligence is more detailed, and funding approvals can be protracted. The longer it takes to complete the deal process, the riskier a successful outcome becomes.
  5. Attractiveness – work out what makes the business attractive to a purchaser. Scale is critical and will lead to a higher value and a wider potential purchaser base. Appeal to an international audience will also drive value.

Business owners know better than anyone else the ins and out of the business, however sometimes it can take someone independent of the business to identify where all the value enhancement opportunities exist.

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