A lack of professional advice, overvaluations, and Ferraris on the balance sheet are just a few pitfalls to avoid when trying to exit your business, Daisy Founder, Matt Riley, has told a UC Today event.
Matt Riley was speaking as part of the virtual M&A Insights 2021 which gives channel partners the lowdown on the state of the acquisition landscape this year. The event is available to view on-demand, free of charge, here.
Riley has overseen some 60 acquisitions since founding Daisy 20 years ago, as well as a handful of disposals.
Speaking to UC Today, he went through some pitfalls that business owners can often encounter when trying to sell their company.
Lack of Preparation
Business owners often expect to be able to sell their businesses far quicker than is realistic, Riley said.
Daisy recently sold a stake in channel-only business Digital Wholesale Solutions, for example, which the founder said was a deal 12 months in the making.
“I see the same thing over and over,” he said.
“First of all, get prepared. Don’t just decide on a Friday you’re going to sell it and expect to do it the week after. Unfortunately, because the channel is like it is, people do that and then wonder why they’re not getting the right results.
“So, you need to really plan that out.”
Not Getting Professional Advice
Riley said that this rushing can lead to some owners cutting corners and not seeking advice from M&A experts.
This, he explained, can make them look unprofessional and spook potential buyers.
“So many times, we see businesses where they’ve not got proper advice and accounts,” he said. “They give you numbers that don’t really stack up, and then you’re really fighting a losing battle.
“There are some really good advisors, and you need to go and use them. Don’t nickel and dime on that because, genuinely, these guys will get you the right result.
“They know what people like myself and other acquirers are looking for… they will get your business in the right shape, and it might take 12 months, but you’ll get the right advice that will get you the right exit.”
Suspicious Balance Sheets
It’s inevitable that a potential acquirer will check a business’ balance sheet during due diligence, with Riley explaining that many owners don’t remove inappropriate assets before this happens.
He said that Daisy has seen everything from sports cars to luxury apartments on balance sheets, and warned that sellers should remove personal assets or side projects before bringing in potential buyers.
“We’ve had everything you could imagine on a balance sheet,” he said.
“We’ve had Ferrari Enzos, boats, Miami flats… we’ve seen all of these things, but you’ve got to think what the acquirer wants”
“As much as I love Ferraris, I’m not sure you owning one in your business is going to do my shareholders any good, so you need to move that out
“That comes back down to the planning and getting a good advisor that will strip all of that out.”
Overambitious Numbers and Valuations
They may not do it intentionally, but owners are often guilty of presenting lofty growth forecasts that the business has never achieved before – which Riley said can makes him suspicious of their accuracy.
“Why would a business grow at 20 percent this year when it hasn’t done that in 10 years?” he said.
“We’re going to ask you a bunch of questions on that and if you can’t answer them, you’re going to look a little bit silly.”
It can also be a similar case with valuations, he added.
“That’s our business bugbear,” he said. “The business may have been trotting along like this but they’ll tell you it’s going to do that and ask us to buy it on that valuation.
“We’ve not come in on the banana boat; we know these businesses well so just give us the run rate that you think it really is.”
Riley also discussed Daisy’s future M&A plans, including how it has been outbid on its last three targets, and how its M&A strategy has evolved over the years.
You can view his session, and the three others from M&A Insights 2021, by registering for the event here.
