When it comes to exit strategies, it’s all in the execution. Master that and there’s a strong chance of achieving a successful outcome. NZBusiness traces the steps of two succession case studies to prove the importance of a sound strategy and professional consultation.
Exit strategy planning applies across all size businesses in New Zealand. However, the larger the company, the more options there are available.
Simon Mundell, CEO and founding director of Advisory Works, a strategic execution consultancy based in Auckland and Christchurch, lists four of the more common options.
First, you can sell the business as a going concern, “typically between two to four times the EBIT valuation”. Easy, clean, simple, if the owner is prepared.
Second, there is the strategic trade sale – whereby the purchaser buys the business to leverage some of its existing assets. This could be IP, customer base, brand, people, or perhaps product range.
Third. Management buyouts, which are becoming increasingly common.
The fourth option is a management buy-in where, as Mundell explains, the external party purchases shares in a business and becomes GM, with additional equity purchased over time.
Of course, determining the best option will involve sitting down with a professional from an advisory firm such as Advisory Works.
Grant Stapleton, a business strategist also with said firm, says considerations for succession planning include timeframe expectations by both the owner and successor, what value the company owner is attributing to the business, what’s the appetite for risk by both parties, and what’s negotiable and what’s not.
It’s also important to determine whether the business can run independently of the current owner – if it can’t it will reduce the value and the appeal of the business to prospective buyers.
“We often find that the business owner’s role is completely unstructured, and we’ll work with them to create a structured GM or CEO role that an external party can fill,” explains Mundell.
“This has a significant impact on the number of interested purchasers and the valuation of the company. Simply put, the business owner must get out of the way and prove that the business can stand on its own two feet independently.”
Without expert guidance, succession plans can fall apart. Often owners try to achieve too much in an insufficient timeframe. They may leave their start too late, or misunderstand the importance of people in the whole process. Treating the process as a cost rather than an investment can also be fatal.
“Succession is a process, not an event, and typically takes two to three years to have the business operating under good governance,” explains Mundell, “with the ability to operate without reliance on the current owner’s knowledge or skillset.”
He believes succession planning is largely misunderstood, “partly because most accountants think it’s about having an up-to-date P&L and balance sheet”.
“The reality is far more complex, requiring a clear and defined culture, a clear vision with measurable progress towards that vision, an executable plan that the team (not the owner) are executing, strong leadership and, most importantly, the disciplines that drive execution – such as meeting rhythms, regular planning, the right visible metrics, and so on.”
In terms of preparation for a succession plan – often the most important aspect is structuring the CEO or GM’s role.
Mundell explains. “In many businesses the roles and job descriptions, plus corresponding metrics, are usually somewhat defined. However, the business owner’s job description can be summarised in two words: ‘wing it’. This makes it very difficult to replace the owner who is generally the current CEO or GM. So this role needs to be structured.”
Whichever way you look at it – the succession/exit process can be littered with stumbling blocks and potential mistakes if managed by the wrong hands.
Grant Stapleton’s concern is that business owners do not have a clear plan and fail to validate a plan prior to commencing the exit or succession process.
Well run businesses actively plan to put themselves in a position of choice; a choice to expand; to sell; to merge; to acquire; or to exit.
For Simon Mundell, only having one potential acquirer at the table can be a worry too. “Ideally you want two or three options to create competitive tension.”
Logan Wedgwood, a strategic advisor at Advisory Works, says the most common mistake they see is the business owner who opts for a management buy-out, but then tries to step back in and “get their hands dirty”.
“They don’t give the new leaders room to run the business,” he says, adding that it’s an issue of trust and confidence. “Trust that they have the right people in the right places, and being confident they have put the right structures in place to start to step away.
“It is a journey, not an overnight success and owners need to prepare
for this.”
What does freedom look like?
When Wedgwood weighs up whether or not to take a new client through the succession process, his first question is ‘what do you want for yourself?’
“You’d be surprised how often owners don’t know what freedom from their business looks like,” he explains. “It has become such a huge part of their identity over time that they haven’t really stopped to imagine what life is like without it.
“For example, ‘more time for travel’ or ‘seeing more of the world’ is an easy goal to get people thinking about and is quite a common driver.
“It’s important to clarify the personal drivers so that when they encounter disappointments or barriers – like a leader quitting the process or a buyer falling through – they can push on and keep working towards the ideal outcome.”
This story compiled with the support of Advisory Works.
__________________________________________________________
TOUGHING IT OUT
When Juedie Nowell purchased her ex-husband’s share of Global Linings Limited in 2010 to become the sole owner/director of the plasterboard fixing company, she also hatched a plan to sell up in five years and retire. She even brought in two shareholders to help facilitate the plan, including a nephew who purchased a 25 percent stake with a view to buy her out.
Unfortunately two rather large curve balls were about to scupper Nowell’s plans.
First, the GFC hit home – reducing the business to survival mode. Then her 35-year-old nephew suffered a stroke, meaning the buyout was no longer possible.
So in 2013 Nowell bought the shares back and head-hunted a GM – a young, energetic ex-builder with sales experience and industry contacts, and keen for a challenge.
Her succession plans were put on hold – it was time to grind it out until the heavy recession clouds receded.
Nowell’s tenacity and sense of responsibility were largely instrumental in growing the business. She launched another company, Global Fire with new business partner Craig Pearse.
In 2016 it was time to revisit a succession strategy “to enable me to retire before I was in a zimmer frame!”, and when her bank invited her to a seminar presented by The Results Group (now Advisory Works), she took along some senior management.
The seminar was run by Simon Mundell. “He was entertaining and inspirational – the best,” recalls Nowell. “All of us agreed that this was what we needed to get the company to the next level.”
Advisory Works has been her succession strategy partner ever since.
Letting Go
Nowell admits the succession plan to date has been for herself – to free up some “beach time”. But this has involved a degree of stepping back – which has been hard.
There have been many steps. First, ensuring the management team was engaged and committed to the company’s core values – which are now plastered all around the office and are “part of our everyday thought process”.
Areas of strength within the team were identified, to help understand how they would react and deal with specific circumstances.
Standard operating procedures were set up for all areas of the company; KPIs to show accountability; BHAG (Big Hairy Audacious Goals) to inspire staff; and one-on-one mentoring for each of the management team.
Nowell has successfully offloaded 70 percent of her workload by hiring extra people and/or getting others to absorb specific duties. The succession process has required discipline and commitment from everyone, she says.
But the major personal adjustment for Nowell has been in letting go.
“Over the years I’d got into a habit of doing whatever had to be done, no matter what it took. I had become through necessity, I believe, a workaholic. I had confidence in myself to get something done, but not so much with others. I needed to entrust others with some of my workload. That took some effort from me.”
Lessons on succession
Nowell credits the success of the ongoing succession plan to the following:
• The decision to seek outside, professional assistance in how and where to start.
• The engagement and commitment of her “amazing management team”.
• The regularity of meetings, and therefore accountability to others.
• Setting goals and desired achievements by specific dates and documenting them.
• An ‘independent’ being involved at these meetings and his continual support and advice.
• The improved structure.
• Global Interior Solutions’ written and learned core values.
Her advice is to constantly strive to be the best you can be and give your company the attention it deserves.
“Have structure, systems, goals, challenges and do your utmost to keep your staff engaged at all levels. Do the surveys to help you see where your staff are. Without your people, you don’t have a business – so invest in them.”
Nowell is grateful for their relationship with Advisory Works. “At the beginning we felt we were loading our already busy selves with a lot more work. [The key is to] grit your teeth and just do it – to stick with the programme no matter what.”
__________________________________________________________
GENTLY DOES IT
Founded in 1974, EPL (Elastomer Products Limited) is a leading polymer and rubber extrusion company, headed by majority shareholder and managing director Tom Thomson.
Aged 60, Thomson embarked on a succession plan aimed at providing a gentle exit from the business, while securing the future of his people – many of whom he’s worked with for 40-plus years.
It would be a long-term plan – including a documented ten-year strategic plan for the company that captured Thomson’s vision and values; an exit strategy timeline; the appointment of CEO and successor Mark Field; and thorough communication with all stakeholders to maintain company-wide confidence going forward.
The succession plan is a work in progress – with Thomson no
longer involved in day-to-day business activities, but still active in
new projects.
“These projects are where his skill and experience can be fully utilised, whilst providing mentoring for others,” explains Field.
Advisory Works has been heavily involved in the whole process,
adds Field, “advising Tom and mentoring myself”.
“Having an independent and experienced ‘voice of reason’ through the succession planning and implementation has been invaluable. It helps to remove emotion and is about getting the best outcome for all involved.”
Field’s advice for other company owners looking to successfully exit their business is to start the process well before you think you need to.
“[With us] there were set backs like the unexpected departure of a key staff member, earthquakes and a challenging economic environment.”
The business owner and CEO should both seek external coaching,
he says.
“From an owner’s perspective it is very difficult to let go of ‘your baby’ and let someone else run it. From a CEO’s perspective, it’s hard to affect change in a business when resistance may come from the owner.”
NZBusiness June 2018
Alphero, 2degrees Mobile win Good Design Award
