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Exits

Exit planning starts with an acquisition. We aim to stay close to the private equity (PE) house and its investments throughout the period of ownership. All the disposal options are harder. Flotation is hampered by falling stock markets. Trade sales to a competitor or complementary business may attract a lower price. We see more sales to secondary buy-out funds in response to the shortage of liquidity, but these buyers are as sophisticated as the PE House trying to sell.

Our clients turn to KPMG to help find a buyer. Increasingly they ask us to determine whether the company has been groomed effectively for disposal e.g. preparing information that a potential buyer would be interested in.

As a result of continued underperformance against budgets, deals are taking longer to close and prices have fallen during sales. In helping our clients prepare for a successful exit we challenge the projections at an early stage to seek to determine if they are robust.

In a climate where the pressure to achieve good returns has increased, vendor initiated due diligence can be a vital tool in achieving a successful sale. The report aims to provides the prospective buyers with all the information they require to make a bid, and remains independent, as the advisers who prepare it stay legally accountable for the findings.

Re-financing through gearing up a portfolio company to enable a shareholder to realise some of its investment is a means of partial exit. PE houses need to build credible plans to support a re-financing case made to lenders, who may view a partial exit by the equity provider before they receive their capital return in a sceptical light. The banks’ requirement may be for an independent report on the projections underpinning the re-financing case. There may also be the need for the disposal of certain elements of a business post re-financing as a means to lower debt to an acceptable level.

Thought should also be paid to whether a portfolio business can be broken up and sold piecemeal where a whole business sale is not possible. This may only prove to be possible where the business has distinct elements that lend themselves to separate disposals at attractive prices.

Any partial return to PE house shareholder will need tax and legal input. An important consideration in full and partial exits is increasing the post tax returns to the fund investors, PE house executives and management, who in complex cases could be based in numerous jurisdictions. The tax elements of an exit should not be underestimated. Any tax cost can affect investors' returns, particularly where multi-jurisdictional businesses are involved. KPMG have the advantage of being able to meet PE houses' tax and legal needs.

KPMG's teams are focused on helping you make sure you get the best return possible from the exits you make.

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