Navigating your private equity journey

BDO’s Demystify brochure can help you if you are considering short-medium term investment options, including funding requirements, and need to build you knowledge of Private Equity and the process.

AN ESSENTIAL GUIDE FOR TECH BUSINESSES | OCTOBER 2021 NAVIGATING YOUR PRIVATE EQUITY JOURNEY

INTRODUCTION Welcome to the newly refreshed Demystifying Private Equity e-book, written in collaboration with some of our most experienced finance experts, brought to you by BDO’s plugd:in platform. Inside you’ll find a range of expert insights, top tips and guidance to help you navigate the complex world of Private Equity (PE), including advice on preparing your business for sale, how to choose the right investor, and some common mistakes to be aware of throughout the PE process. We’ll even help you assess how and when your business is ready for sale, so you can gauge the right time to maximise the benefits to you, while securing the best possible future for your business. You’ll also enjoy a guest appearance from Harry Dougall, founder of intelligent data solutions company Sagacity, who uses his own first-hand experience to give five key considerations for founders starting out on their PE journey. You can find his video interview on page 13. Whether you’re ready to kick-start your PE journey, or simply considering future pathways for your business, we hope this e-book will provide a useful grounding point – demystifying the process and giving you the confidence to take that all important next step for business growth.

IAN MCBANE Partner & National Head of Technology & Media Editor in Chief

BDO LLP | PRIVATE EQUITY

CONTENTS

INTRODUCTION

STAY OR SELL

ONE SIZE FITS ALL OR ENDLESS OPPORTUNITIES

ARE YOU READY FOR PE INVESTMENT?

FIVE MISTAKES TO AVOID

FIVE CONSIDERATIONS FOR FOUNDERS

CHOOSING AN INVESTOR

PREPARING FOR SALE

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STAY OR SELL: IS THERE A MIDDLE- GROUND? REASONS TO REVALUATE Tech founders often take time to reflect around key moments: Age: You reach a milestone birthday – it used to be 50 or 60, but these days it’s just as likely to be 40 – and start to wonder whether it’s time to retire or try something else. Health: The rigours of running a business, wearing different hats and bearing a lot of responsibility can take their toll, especially if you have any personal or family health issues. Family circumstances: A family issue is another obvious trigger to give a tech founder pause. If you’re hoping to spend more time with family, you may look to find a good work/life balance (and reap financial benefit for your dependents) by selling up. What’s it worth? Another existential moment for a tech founder is realising you are wealthy but it’s all tied up in the business. This can trigger an urge to diversify so you have more to show for all your hard work. A potential investor or buyer: Buyers and investors are

It’s often said that tech founders spend all their time in the business rather than on the business. You’ve got your head down, dealing with the priorities in front of you; there isn’t always time to look beyond the next 12 months. With all your time and energy going into your business, you may start to revaluate things. You may even wonder about selling up. But is it a passing thought or an indication of something more serious? Before you make a hasty decision, look at why you might want to sell. And if you do decide it’s time to change, what are your options? There could be a middle way between the two obvious choices of staying on, or exiting.

We explore some of the typical things that make tech founders consider an exit.

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EXTERNAL INDICATORS When you started your technology business, the chances are you seized a gap in the market and capitalised on it. You did something better or differently to everyone else. Having to constantly evolve your product in order to just stand still can be very challenging. But unless you do, the competition can catch up and erode your advantage. Where once you were an innovative force, you may now be in danger of being disrupted yourself. The challenges of evolving your product and business offering can be daunting. Disruptive newcomers may threaten not just your existing business models but also your revenue and point of difference. To compete, you may need to bring in whole new skillsets and systems and re-educate prospects. Do you have the appetite and the capabilities to take on this challenge? The pandemic increased pressure on tech businesses. Now founders need to evolve and adapt their current business processes and product offerings – not to grow but just to survive.

constantly seeking opportunities to invest in growth businesses. As a result, you may receive an unexpected and unsolicited approach from a PE house or trade investor. The figures could seem simply too good to turn down, even if you weren’t planning to sell. Time for a change: You may have reached a point where you want to do something different, like a creative endeavour, charity work or another business venture. Now may feel like the right time to pick up something you always wanted to do but had put on hold. Appetite for risk (or lack of it): The business may have reached a point where it needs significant reinvestment or re- engineering to keep growing. Can you generate the cash to fund new systems, new premises and increased staff? Coupled with your personal situation, you also need to weigh up other indicators that could argue for or against an exit from your business. These can be divided into external and internal indicators.

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STAY OR SELL: IS THERE A MIDDLE- GROUND? INTERNAL INDICATORS You need to look at potential internal issues too. If the business needs to evolve significantly, do you have the systems, processes and people in place to manage that transition? Can the business find the cash and the expertise to facilitate such an overhaul? For your tech business to grow, you need a management team with the competencies and experience to perform against aggressive targets. In many privately owned businesses, the senior team isn’t really an executive C-level team but a group of general managers who are focused on execution rather than strategy. When you implement a strategic recruitment policy to create a more scalable business, always plan for time costs and possible personnel issues. continued

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WEIGHING UP THE OPTIONS All these factors need to be considered, together with your own personal feelings and wishes. If your tech business needs a significant overhaul, are you energised by this prospect, or does it all feel a bit overwhelming? Either way, what are your options?

PE MONEY-OUT DEALS – THE BEST OF BOTH WORLDS? A third option is to do a “money-out” transaction with a PE firm; a kind of managed transition. Typically, the PE firm offers to buy a significant minority stake (30-40%) and keep you involved in a senior position. The PE firm sits on the board and builds a succession team, for example by hiring an FD, CEO or Head of HR. This can be great as you get to focus on what you’re best at – such as strategy, selling or product development. Typically, you get an initial lump sum, which allows up-front diversification of wealth, and then a significant pay-out when the PE investor sells the business on. By that time, the business should be more scalable, with a strong management team and a credible growth story in place. If you’ve reached a point of existential doubt, the benefits of this type of arrangement are obvious. You get some money up front, plus a trusted partner and adviser to help take your business past its current challenges and to the next level. You retain a majority stake in the business and succession is addressed as your role is gradually migrated out. If the outcome is a successful sale, there is more money to come. No matter your reasons for considering selling your tech business, PE can provide a great middle way.

EXIT: If your business needs significant investment and/or re-engineering to deliver on its growth potential and you are falling out of love with it, this may point to an exit. The obvious routes here are to sell to a trade investor or a PE house. A trade investor or buyer may be happy with a team of general managers. They are likely to be buying for defensive reasons and will want to fold the business into their own operations rather than selling it. For example, a larger trade buyer might be building a portfolio of products. A PE buyer, on the other hand, will need to see evidence of a senior and successful management team as well as a credible growth story. STAY: Staying means that you can find a way to fund the growth that your business needs, either internally or by taking on debt. You probably also have the makings of a management team to help you evolve. You may be able to engineer a change in ownership structure, perhaps by transferring key responsibilities to a board member and staying on as a non- exec. This only works if you don’t need wholesale investment.

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PE: ONE-SIZE-FITS- ALL OR ENDLESS POSSIBILITIES?

There is a belief among many tech founders that PE is ‘one-size-fits-all’. That PE investors are only interested in big businesses and they like to take a majority stake. This misconception means that management and founders often discount PE as a viable option when thinking about funding and future plans.

The truth is that PE investors come in all shapes and sizes. They have the firepower and appetite to do all kinds of deals with all kinds of potential portfolio companies. They also have unique personalities and approaches to working with tech businesses to achieve their goals.

Scale-up – where venture capital or smaller PE funds invest in smaller businesses who need capital and expertise to grow further. The funds are typically used to build more substantial business infrastructure such as growing the sales team and developing international markets. Buy out – where PE funds invest in larger, mature businesses. The investment helps facilitate a change of ownership such as a management buyout (MBO). This allows the existing management team, who perhaps have no or little equity ownership, to buy into the business alongside a PE house.

PE INVESTMENT SEGMENTS YOU MIGHT FIND IT HELPFUL TO THINK OF THE INVESTMENT MARKET SEGMENTS AS FALLING INTO FOLLOWING BROAD CATEGORIES:

Start-up – where venture funds look to back a concept or idea. Often businesses are pre-profit and sometimes even pre-revenue! Funds are typically used to develop a product and build business infrastructure such as opening an office and recruiting staff.

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PE SPECIALISTS Even within the categories of start-up, scale-up and buy out, investors have different approaches. • Sector specialists who focus on one area, such as technology or, even more specialist, software. • Level of control : some investors want majority control whereas others are prepared to take a minority stake. • Involvement : some investors adopt a passive approach when managing the investment, to the extent of not even taking a board seat. • Timeframes : some investors have exit timeframes of 3-5 years whereas others are happy to have longer-term holds.

PE: ENDLESS OPPORTUNITY WITHIN A COMPLEX LANDSCAPE As you can see, the investor landscape is vast and varied. This may seem daunting for first-timers but it is actually a positive. It means there is an investor for virtually any size of company, in any tech subsector and for any type of deal. If you are looking for PE investment, be clear what type of deal and investor you are looking for. It also pays to find a good advisor too, as this will be critical in getting the right investor and negotiating the right deal for your tech business.

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ARE YOU READY FOR PE INVESTMENT?

Why is it important for your tech business to be ‘investor ready’? Well, your chances of a PE deal going through is strongly linked to your level of readiness. When a PE deal process fails it is very frustrating for both management and the prospective investor. In most cases, both parties have expended significant amounts of time and effort. There are many and varied reasons why a deal can fall through, but one that is consistently cited by investors is that a business was not “ready” for investment.

HOW STRONG IS YOUR MANAGEMENT TEAM? Your management team must have depth and breadth. A business must have a leader, but it also needs strong senior staff across operations, sales and finance. An investor will be nervous if your tech business is dominated by, or is too reliant on, one individual who directs and controls the senior team. Following the pandemic, investors have added another layer of questioning around dealing with crisis and disruption. They will want to know your senior team’s approach over the pandemic and whether you took the opportunity to react to the changes and reset your strategy. A good example of this is accelerating the adoption of technology to improve internal efficiency and/or enhance customer experience. It will not reflect well on the team if your approach was to simply do more of the same. PE investors will not be put off by the need to fill gaps in the management team. A PE house will often be able to add value by attracting quality executives to the business.

So what does being ‘investor ready’ mean for a tech company and how can your business get there?

To find out, you need to think like an investor.

The seven key questions to ask are:

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DO YOU WORK ‘ON’ AS WELL AS ‘IN’ YOUR BUSINESS? Do you regularly create time for the leadership team to discuss the business’s strategy and overall direction of travel? In many fast-growth tech businesses with limited resources, the leadership team can find it hard to make time and space to step back from day-to-day challenges. An investor will not expect you to be holding monthly board meetings - this can be developed post-investment - but the discipline of devoting time to your strategic direction and priorities will be well received.

DO YOU KNOW YOUR KEY STRATEGIC PRIORITIES? It will be attractive to an investor if you have an agreed list of meaningful strategic priorities ahead of any investment. It will give them confidence that you are focused on growth and ready for investment. Your strategic priorities are not a tactical ‘to do list’, they must have a material impact on the growth of your business. Think geographic expansion, product extension or making acquisitions. Keep it light as too many strategic priorities can be as bad as too few or none at all!

DO YOU HAVE MEDIUM-TERM FINANCIAL FORECASTS? Like many privately owned fast-growth tech businesses, you may not have medium-term financial forecasts. But PE investors usually have a 3-5 year time horizon for holding an investment. A medium-term financial plan will underpin their investment and the shape of any future returns. Medium-term forecasts cannot just be based on a top-down view. For example, “Sales will grow at 20% per annum” is not a solid forecast. You should also have a bottom-up analysis with carefully considered assumptions around the level of overhead investment required to support top-line growth.

DO YOU USE DATA TO MAKE KEY DECISIONS? The management information produced by in-house finance teams does not always meet the needs of a PE house in terms of frequency or detail. Financial information is often historical, focusing on past successes, rather than on re- forecasting future results as conditions change. Potential investors will be nervous if your decision-making process in the business is largely intuitive or made without using data or evidence. It’s important to make sure existing systems are being used to their potential, with any manual aspects eliminated to enable regular, timely and accurate management information to help inform and drive growth.

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ARE YOU READY FOR PE INVESTMENT?

continued

IS YOUR BUSINESS DUE DILIGENCE READY? It’s never too early to start preparing for a due diligence examination.

HOW WELL DO YOU REALLY KNOW YOUR CUSTOMER? Most tech businesses will claim that they know their customers very well. But how do you make use of customer insight? The more you understand your customers and how they use your products or services, the better you will be at retaining and winning business. Do you know, in detail: • What services are used? • How much profit is made from each customer?

It’s a common mistake when approaching the PE process, that businesses underestimate the importance of reviewing their financial and tax information, particularly when considering complex areas such as revenue recognition, and the constantly changing tax landscape in the UK and overseas.

• The cost of acquiring new customers? • The potential for selling other services?

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OTHER COMMON TAX RISK AREAS BUSINESSES OVERLOOK INCLUDE:

Businesses entering PE negotiations must be able to provide stable and robust financial and tax information, or risk failing due diligence surveys and seeing their PE deals fall through. If you can answer “Yes” to the seven key questions, your tech business is an attractive proposition for potential investors and may already be ‘investor ready’. Finally, even if you don’t go for or get PE investment, your tech business will be more effective and profitable if you can answer yes to the seven key questions.

SHARE SCHEMES / TRANSACTIONS IN SHARES

THE USE OF CONTRACTORS

THE IMPACT OF OVERSEAS EXPANSION

SUSTAINABILITY OF R&D CLAIMS

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BALANCING REALISM AND AMBITION: The medium- term financial forecasts of your

tech business are fundamental to a PE firm’s appetite to invest. These forecasts articulate the business’ future growth strategy and anticipated returns for shareholders. Mistakes tech businesses often make include: • Over-cautious forecasts – management teams often believe that over-cautious forecasts will be viewed favourably by PE investors. They present unexciting growth rates and leave themselves scope to over-perform. The issue here is that unambitious forecasts, and their potential returns, will not attract investors. • Over-ambitious forecasts – the desire to excite an investor can lead to aggressive forecasting. If you anticipate tenfold increases in profit over four years, for example, this will lack credibility. TIP. Find a middle ground where your forecasts are positive but will stand up to the scrutiny of any due diligence.

PITCHING TO PE: FIVE MISTAKES TO AVOID The prospect of raising PE investment for your tech business can be both exciting and daunting, even for an experienced management team. You need months of preparation – developing a credible growth story, creating an engaging investor pitch book and readying the business for intense scrutiny. All this hard work can be undone if you make an avoidable mistake in your pitch. Here are the top five mistakes tech businesses make when pitching to PE firms, and how to avoid them:

SKIN IN THE GAME: When you as the management team already hold some equity in the business,

a conflict can arise as you are effectively wearing two hats. You are both sellers looking to maximise the price for the equity, and buyers who want upside from the shares held in the business going forward. Any deal with a PE firm will involve selling some of the equity and re-investing the remainder into the new deal. This is commonly referred to as a ‘money out’ or ‘shareholder realisation’. For this reason, PE investors will always want you to have significant ‘skin in the game’; they need you to be as focused on generating future returns as they are. TIP. When pitching, try not to place too much emphasis on the cash realisation element of the deal. This will be a red flag for many investors as it suggests that future growth is less important to you.

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HOW DO YOU SOLVE A PROBLEM?: How do your products and services solve

a particular problem experienced by people or businesses? How does your solution to a problem win you customers and enable your business to grow? This is your business proposition – and it is a key part of your story. Investors recognise that your business may be able to grow to a certain size by meeting customer needs opportunistically. However, to be able to reliably scale to 2-3 times your current size, you need a more proactive approach. Investors in tech businesses are looking for this growth profile. They also like to back businesses who use technology to improve internal processes and/or enhance customer experience. You don’t necessarily have to develop this tech in house, you can adopt third -party technology. TIP. Get comfortable articulating your business proposition and improve your tech capabilities where necessary.

HOW DO YOU MAKE YOUR MONEY?: Investors are initially attracted to tech businesses with growing profitability. But for this initial attraction to last and result in a deal, they will want to understand how profits are produced and will continue to be produced. Typically, investors will want to: • know how much profit comes from each product and service line • establish the profitability of each customer • establish if and how profits are repeatable and how these profits turn into cash TIP. Present as much detail as possible about how your business generates repeatable, cash profit

COMPETITION, WHAT COMPETITION?: All tech businesses have existing and

potential competitors, whether you know them or not. Investors do not look favourably on businesses who dismiss or minimise their competition. Investors will want a proper analysis of your key competitors and their strengths and weaknesses. They will need to know how this competition might impact the potential of your business. And within tech specifically, competition tends to be very strong.

TIP. Present an in-depth competitor analysis, showing opportunities and risks.

• Your desire for a stake in the business • The realism of your forecasts • Your market and your competition • How your business meets a need • How you drive profit by meeting that need

BOOST YOUR CHANCES OF SUCCESS Don’t let your hard work be undermined by these avoidable mistakes. When pitching to PE as a tech business, you should understand and be able to articulate:

Get this right, & you boost your chances of a successful PE deal. Good luck!

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FIVE CONSIDERATIONS FOR FOUNDERS WHEN UNDERGOING A PRIVATE EQUITY (PE) JOURNEY

Click to play

Harry Dougall, Co-founder and CFO of data technology company, Sagacity, has first-hand experience handling the PE process. Talking to BDO, Harry offers his insider advice, giving five key considerations all founders approaching the process should keep in mind.

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MAKE SURE YOU’RE ALIGNED When selling to PE, it’s important to convey a clear vision for the future that all stakeholders have agreed on. This vision must be transparent and achievable, focusing on the medium and long term in order to inspire interest and demonstrate the future potential of your business. CONSIDER THE QUALITY OF EACH OFFER The best offer is not always the highest bid. There are plenty of outside considerations you’ll also need to think about, like the longevity of the relationship itself. You’ll be working closely with whoever you go into business with for the foreseeable future, so it’s important to ensure the deal you strike works for everyone. HIRE AN ADVISOR A good advisor is critical. Not only will they help manage expectations both internally and externally, they can also help you to avoid common pitfalls in the process and ultimately negotiate the best deal for your business. 5. 3. 4.

FIVE KEY CONSIDERATIONS FOR ALL FOUNDERS APPROACHING THE PE PROCESS

UNDERSTAND THE COSTS Of course, the ultimate goal when approaching PE is to sell for profit. However, there are also a number of costs involved in the process. Vendor Due Diligence is one, then there’s the cost of hiring an advisor. But perhaps the most overlooked cost is time – not just for you as a founder – but all internal management teams who’ll have to dedicate hours to ensuring the process runs smoothly. PREPARE FOR TRANSPARENCY There’s no hiding when it comes to PE. As a business owner you must be prepared to lay all your cards on the table. The more open and upfront you are about the details of your company, your financial records and future projections, the smoother the process will be and the better your relationship with potential investors. 2.

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CHOOSING A PE INVESTOR: 5 TOP TIPS FOR YOUR TECH BUSINESS HITTING THE SWEET SPOT? PE funds will have a range for how much they will invest in each deal. You need to use your network, and ask advisers to understand each potential investor’s funding ‘sweet spot’. If the deal is at the lower end of their range, will the investor give your business enough focus going forward? If the deal is at the higher end of the range, there may not be sufficient appetite for follow-on investment. Look for a deal that is important enough to matter to the fund, while allowing room for future funding. 1.

Started looking for PE investment? Here are five key tips for judging whether an investor is right for you and your tech business. When your technology business has strong growth prospects, you are likely to have several offers on the table from competing PE firms. These offers will probably be broadly similar in financial terms, so the question for you is how to make your decision. Here are some suggestions that should help you make the right choice. And remember, it’s your choice. There are aspects of the PE house strategy and performance that you should scrutinise carefully, as they will certainly be scrutinising you!

Do your homework and remember, you will potentially work with your new PE partner for up to five years.

STRONG TRACK RECORD? Does your fund or investor have a good track record of successful investments in the technology subsector you

operate in? Your potential investors will not hesitate to judge your company’s historic financial performance, so you should apply the same lens to your choice of investment partner. For example, you could ask for details of the returns made from the last fund.

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SUPPORT ON OFFER? Before you choose an investor, you need a clear idea of the type of support you need. If you are an earlier stage technology business, you may want support in sales and finance. If you are a larger and more established tech business, you may need help with an acquisition strategy and international expansion. The level of support on offer is key when judging potential investors. How much experience do they have of successfully providing the kind of support you need? Ask how supportive the investor has been with existing investee companies over the pandemic, for example. And ask to speak to existing investee companies for their opinion on the support offered and received. IT’S ONLY FAIR Your management team will be heavily scrutinised by potential PE houses. It seems fair that you should apply a similar level of scrutiny to any potential partners! As well as asking questions about the terms of the offer, remember to ask the five questions highlighted here.

POST-DEAL INVOLVEMENT? Often, PE houses have dedicated portfolio teams focused on managing the investments made. The portfolio team will take over from the investment team that you may well have built a strong relationship with. It is advisable that the handover from investment to portfolio team is done as soon as reasonably possible, preferably ahead of the deal completing. This will allow you to develop a relationship with the new team and settle the questions such as: • How will your investor be involved after the deal is done? • Will the investor take a board seat? • Who from the PE house will be appointed? • What type of board meetings will occur and how often? • How much interaction will there be with the management team? GENUINE MARKET INSIGHT? Many PE houses will cite technology specialism as a point of differentiation. But it takes more than a couple of relevant investments to develop the level of knowledge that is going to really help your business. Here are the things a PE house with genuine technology expertise should be able to demonstrate: • Numerous deals over many years in the tech market or sub- market • Well connected with industry executives and non-executives • Demonstrable understanding of the issues facing your sector, such as opinion pieces or published articles. 4.

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PREPARING YOUR BUSINESS FOR SALE: UNDERSTANDING PRIVATE EQUITY WHY SELL TO PRIVATE EQUITY? For many tech founders, building and growing a successful business is a lifetime’s work. However, there are a number of reasons why a founder may decide to sell all or part of their company, including decisions around retirement, changing priorities, funding growth, or the desire to cash out and venture into new business opportunities. A potential difference between a PE partnership and an exit to a trade buyer is that, with PE, business founders often remain as part of the management team. This enables you to realise some of the value you’ve created, while bringing on a new investment partner to take the business to the level.

The decision to take private equity investment is one of the most critical a tech founder will make. And if it’s a route you’re considering, there’s a lot to do when it comes to preparing your business, from establishing objectives and incentivising management, to carrying out the appropriate valuations and aligning your exit strategy with your PE investor. The best prepared companies typically start their preparation more than 12 months before they plan to go to market. This is critical to give time for pre-sale planning to be actioned and evidenced. Some tax planning will also need to be in place well in advance of a deal. BDO’s PE expert and Corporate Finance Partner, Derek Neil, provides his insight into the sales process, outlining the key milestones for a successful exit.

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DEMYSTIFY: ORIGINATING THE DEAL The first stage is all about demystifying the PE process, so you can look at your business through the lens of an investor and begin to visualise your approach to a deal. It’s important that, by the end of this phase, your approach, goals and expectations are aligned across your management team and other stakeholders, so you can all move forward together. Here are some key questions you should be looking to tackle before originating a deal: • What is your definition of success for yourself and your business over the medium and long term? • What is your business plan to achieve this? • How much investment do you require to fund your business plan? • What alternatives are there? • What are your ‘non-negotiables’? • How could you accelerate your plans and grow your business faster? Once you’ve answered these questions you can then consider how they might be aligned with those of the PE investor. Remember, the main goal of a PE investor is to drive growth in value. Therefore, it’s very important to be able to communicate the value and growth potential of your business. To help you achieve this, we use a tried and tested valuation model, clearly demonstrating the prowess of your business in four different areas: • Risk quotient

In most cases, a PE deal is structured with a private equity firm buying a majority share, leaving the founders (or subset of them) with a minority shareholding. This reinvestment is called a “rollover investment” and makes your company more attractive to PE investors by demonstrating your confidence in the future success of the business. Some PE investors even refuse to deal in sales where existing owners are not willing to retain a stake. PREPPING YOUR BUSINESS FOR SALE So, you’ve decided that PE is right for your business. However, if you’re new to PE the process can seem complicated, with multiple overlapping steps and technical jargon. That’s why it’s almost always best to bring on an external advisor to help you navigate the process and steer you clear of pitfalls and common mistakes. At BDO, we’re well attuned to the PE landscape, with many years’ experience guiding businesses of all shapes and sizes through the sale process, in order to bring them out in the best possible financial position. While we promise to take on much of the heavy lifting through the process, we also believe it’s important that you, the founder, are able to follow negotiations and be an active participant in the process. To simplify things, we like to break the PE process down in to four key stages: demystify, navigate, accelerate and realise. If you’re thinking about working with a private equity fund, you need to work within the first two of these stages, with the latter two focussing on growth through PE ownerships and the ultimate exit. Let’s take a closer look at these first two stages.

• Revenue growth • Cash conversion • Margin

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PREPARING YOUR BUSINESS FOR SALE: UNDERSTANDING PRIVATE EQUITY PHASE 2 – PLOTTING THE DEAL PROCESS (‘NAVIGATE’) Producing a compelling business plan that can successfully grab and retain the attention of potential investors is a critical next step in the PE process. This stage of your journey is all about gathering the details, crunching numbers and presenting suitable financial metrics for investors to consider. You’ll need to prepare a clear acquisition and financing structure, progress vendor due diligence and ensure that your business plan and strategic drivers are not only enticing, but realistic.

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To help you create this narrative, we will encourage you to work through the following questions: • Can you show that you operate in an attractive market? • Can you describe the competitive advantage of your products and services? How will you maintain this advantage in the future? • Do you have a clear growth strategy? • Are you able to prove your ability to recruit and retain high quality staff? • Can you show that your customer economics are profitable? • Does the business have high quality revenue? • Will your financial forecasts stand up to scrutiny? Are they realistic and backed up with historic data? • Can you prove that your business is well managed using insight data, management processes and KPIs?

WHAT NEXT? Kick-starting your PE journey is an exciting but all-consuming experience. With a BDO advisor on board, we can do all the heavy lifting, leaving you free to focus on the business and continue to build that value and performance you’re trying to sell. You can find out more about the PE process and how BDO can help you at each stage of your journey by visiting our dedicated PE micro-site . In 2020, BDO completed 316 deals worth £14.5bn, 58% of our deals involved Private Equity.

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IAN MCBANE Partner & National Head of Technology & Media ian.mcbane@bdo.co.uk +44 (0)7932 337912 BRAD PAYNE Tax Partner

brad.payne@bdo.co.uk +44 (0)207 893 3528 DUNCAN LAMB Corporate Finance Partner duncan.lamb@bdo.co.uk +44 (0)118 925 4435 DEREK NEIL Corporate Finance Partner derek.neil@bdo.co.uk +44 (0)207 893 2679 DAN LAIRD Audit Director

dan.laird@bdo.co.uk +44(0)203 219 4032

21-10-2762

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