The state of the UK economy at present is putting great pressure on the management of businesses thereby leaving little time for planning for the future. However, in the current market conditions it is even more important to focus on the strategy for your business, whatever its size.
Deciding on the next step can be very difficult particularly when you have the day job to do to ensure the business runs smoothly.
A strategic options review may be the tool to help you decide on your future strategy. This is a rigorous analysis of the business which is likely to identify a number of areas where improvements can boost the business today, as well as increase the longer-term chances of a more profitable sale, if this is an option you are considering.
How do you undertake
a strategic options review?
The starting point
for any review is defining what you want to achieve. Businesses are
unique, dynamic entities and cannot be treated to a one-size-fits-all approach.
The specifics of each review undertaken should be different. However, they
should all start from the same point, that it is a full analysis and
understanding of shareholders objectives.
These objectives are not always purely financial; there are many personal objectives that need to be understood and considered in order to develop a forward plan.
From here the review should move onto an information gathering stage. This must be both internally and externally focussed, identifying the key influence third parties (competitors, customers, suppliers and potential buyers) have on the "what, why, when and how" of realising value from a business.
In terms of output, a quality review will deliver an opinion of the "what, why, when and how" that best fits your objectives. This opinion will be based on detailed and rigorous analysis.
What does this mean
in reality?
At its simplest, a strategic options review will help an
owner decide whether the best option is to hold, invest and grow the business
for a future sale or to sell, fully or partially, in the short-term.
A review will produce a clear picture of the current appetite of trade buyers and private equity investors for your business, and the value and deal structures achievable.
It will also produce a detailed financial returns analysis of the hold, invest and grow alternative and of selling some of the equity (or partial sale) to a third party. This third party would typically be a private equity investor although constructing such deals with corporates can also be achieved.
The preferred option, or in some cases, options then has a defined action plan drawn up to address the key issues from the review and ensure delivery of shareholder objectives. For example, in a recent transaction the price was not the only consideration for the shareholders. In this case, the right solution was a sale to management as this satisfied all shareholder objectives: realising capital value, leaving the business in safe hands and allowing the management team to take the business to the next level.
Don't focus on
internal issues
In assessing options and timings and then defining an action
plan, owners and advisors can often focus too much on internal financial
detail, such as profit trend analysis and balance sheet strength. However, it's
the prevailing climate in the wider world in terms of overall economy, future
predictions for your market that determines whether, and at what value, buyers
buy.
In addition, the review will highlight importance of building your external awareness and the external profile of your business, in terms of press profile in trade and national press and other marketing communications such as your website. Questions should be asked about whether your PR and website are giving a positive image of your company, if not this needs to be addressed.
How can I use a
strategic review?
A review can deliver real value in a number of ways. It may
highlight the next likely buyer of their business and when their appetite is at
its highest. Such a situation may result in you pursuing a sale much earlier
than you anticipated in order to maximise the return for the shareholders.
In a recent transaction involving a manufacturer, the shareholders were not wedded to an immediate sale of the business as there were areas they wanted to focus on internally.
However the strategic review highlighted there were a number a trade buyers actively looking for a foothold in their market and it was the right time to sell the business. While there were still areas the business wanted to address internally, which ultimately would have improved the bottom line profit, the business has now been sold to an overseas acquiror for a strategic price that far exceeded the shareholders expectations.
Many issues and questions coming out of a review will be of an internal nature. These will range from management structure, operational facilities and systems to the more granular issues such as property leases, employee contracts and environmental practices. Action may need to be taken to address any issues that are identified by the review before they impact on the value of your business.
A strategic options review will ask a number of questions of a business and its shareholders, and deliver a route map towards realising maximum value. It will help you make the right decision for both you and your business going forward and the benefits you can gain from such an exercise should not be underestimated.
Richard Sanders is a director at Catalyst Corporate Finance
