Mission Statement

The Sale Process

Exit Strategy and Sale Price Maximization Planning

Partial List of Completed Transactions

Partial Client List

Former Clients Speak

Former Adversaries Speak

President's Profile

Published Articles

Contact Us


George Spilka and Associates
Investment Bankers & Acquisition Consultants

The Path to a Premium-Priced Deal - Exit Strategy Planning

Contrary to what most acquisition advisors say, owners who are selling middle market companies values from $2 - $250 million do not have to settle for less than premium-priced, all-cash deals. Even though acquirers are trying to steal your company, a selling owner does not have to accept a deal laden with contingencies or finance a portion of the purchase price. I have never acceded to such terms, as my Firm has advised owners and completed acquisitions throughout the country for more than 25 years. A process called exit strategy planning, which my Firm introduced to the middle market in 1990, is a significant factor in enabling an owner to realize a premium-priced, all-cash deal. To sell your company without exit strategy planning risks realizing a premium price.

What is Exit Strategy Planning?

Exit strategy planning defines the personal and financial objectives of a selling owner, and determines the exit strategy and time frame that will best satisfy those objectives. There are various exit strategies that owners of a closely-held, middle market company can pursue:

1. They can sell their company to an acquirer.
2. They can sell their company to the employees through an ESOP.
3. They can transfer their business to younger family members.
They can "die in the saddle with their boots on" and allow their estate to handle an exit strategy.
They can bring in a seasoned general manager to run their company, and allow their estate to handle an exit strategy after their demise.
The examples that follow assume that the first stage of exit strategy planning determined the sale of the company to be the most appropriate alternative. At that point, it is important to remember that acquisition prices are not a function of either historical earnings or book value. Instead, the price is determined by the expected future earnings/EBITDA and the risk in achieving those earnings/EBITDA given the company's business foundation at the time of sale. The goal of exit strategy planning is the planning and timing of the sale such that a premium price can be generated. The process focuses on how to strengthen the company's business foundation. This helps position the company as growth-oriented with expectations of strong future earnings/EBITDA from a solid business foundation that minimizes the risk of achieving those earnings/EBITDA. These factors all contribute to an increased acquisition price.

Strengthen the Business Foundation

What aspects of the business foundation determine how the market will perceive your company? There are many considerations, but the following primary factors will certainly be evaluated:

1. Marketing
2. Personnel
3. Facilities
4. Financial condition

Marketing - What is the Company's niche? How strong is it? How defensible are its markets against the intrusion of potential competitors? A company's niche is often what an acquirer wants. What is the breadth and depth of the customer base? What are the demographics of the Company's markets? How will its markets be affected by projected regional, national, international or industry - specific economic conditions and considerations? Has the company been successful in penetrating foreign markets? Can the acquirer achieve greater success in foreign markets? What changes are expected in its competitive environment? For distribution companies, what is the quality and capability of the manufacturers' products? What are the strengths of the manufacturers' distributor programs? Does the company have the exclusive right for a given geographic area?

Personnel - What is the quality and depth of management? To what extent does the company depend on the selling owner for managerial skills, contacts and leadership? How skilled is the work force? How competitive are the labor rates and the fringe benefit package?

Facilities - Does the company have state-of-the-art technology in its manufacturing, warehousing and/or extraction operations? Does its production process produce a cost-competitive, quality product? What is the current capacity potential? Are its facilities and resources capable of handling future expansion? What effects do these factors have on current and future costs, and investment levels?

Financial Condition - The Company's financial statements should be placed in as clean a condition as possible. This means the company should have a solid group of physical assets (receivables, inventory and fixed assets) to give an acquirer. A positive trend in sales, margin, margin percentage and profit should be shown, if possible. Many things can be done to place a positive skew on financial information. These can be determined by a sophisticated merger and acquisition firm. The following case studies demonstrate how exit strategy planning significantly increases a selling owner's price.

Case Study #1 - $10 Million Becomes $25 Million

My Firm was retained in 1997 by a food products machinery manufacturer located in the Southeast. A market value of $10 million was placed on the company at that time. By implementing the following critical changes (and a number of others not described), the company's value increased to $25 million by 2001, when it was sold by my Firm.

At the time of exit strategy planning, the company had an outstanding group of products that had been developed by its R&D department. Certain of these products were the top-quality ones in their field; others were of extremely competitive quality. All generated outstanding margins, however they had only realized limited sales penetration. Total sales were $13 million and foreign sales were less than $700 M. By the time the company was sold, sales had increased to $27 million with $6 million coming from foreign customers. Among the changes that my Firm recommended, certain were key in creating a significant improvement in operating results and dramatically increasing the sale price by 250% to $25 million.

The marketing effort had been run by a "salesman type". The company needed a sophisticated vice president-marketing, who had the capability and experience to develop and coordinate an inter-national marketing and distribution program. The first step was to hire such a person. Additionally, the in-house sales force was not capable of effectively marketing the products, either nationally or internationally. Consequently, it was recommended that mfrs. reps. be used to supplement the direct sales effort. They were instrumental in obtaining the foreign exposure that facilitated the increase in foreign sales. The success of the marketing effort was further aided by the recommendation to institute a specialized sales effort using "product specialist" salesmen. These marketing changes not only substantially increased sales; but expanded and diversified the customer base that negated one of the company's previous weaknesses, a concentrated customer base. All of these actions originated from the exit strategy planning process.

At the time of exit strategy planning, the company had a lack of management depth in areas other than marketing. The management team in the engineering, production and purchasing areas needed strengthened. Suggestions were made where to increase the staff. These changes were made during the ensuing four year period. The eventual acquirer was extremely impressed with the management team in place at the time of the sale. They indicated that it was a contributing factor in their paying a premium price.

The facilities presented another weakness. To handle projected growth prior to the acquisition and near-term growth expected after the sale, a 70 M square foot plant expansion was recommended. This was completed in 1998 and increased the Company’s annual sales capacity to $45 million. It enabled the acquirer to consummate the sale without the need for additional investment in facilities expansion during the intermediate-term.

Plumbing Distributor - $18 Million Becomes $36 Million

A second example of the importance of exit strategy planning is a Midwestern distributor of plumbing supplies that retained my Firm in 1999. At that time, the company's value was $18 million. By the time my Firm sold the company in 2002, its value had increased to $36 million - a 200% increase. The exit strategy planning resulted in certain recommendations that were instrumental in the increase in value.

The company had annual sales of $25 million. Its products were marketed in a limited geographic area to a somewhat concentrated customer base. It solely served the residential plumbing market. The company had a solid but aged sales force and a limited management base that was too dependent on the selling owner. It was recommended that the marketing effort be geographically expanded, and a strong effort be made to penetrate the kitchen and bath products market. This market would provide tremendous synergy with the residential plumbing business.

These recommendations were implemented and the customer base was greatly expanded. The kitchen and bath business grew to 20% of total sales. The sales force was expanded by hiring several young, well-connected industry personnel. This facilitated the expanding into new geographic markets. By the time the company was sold in 2002 for $36 million, sales had increased by 70% to $43 million. A strong, non-family second-in-command and a sophisticated, experienced CFO were hired.

The acquirer was very impressed with the strong growth of the kitchen and bath business and its considerable synergy with the plumbing business. The acquirer recognized the tremendous growth potential associated with the company's strong sales force. After the acquisition, the second-in-command was promoted to general manager. This facilitated the owner's quick departure after the sale without jeopardizing a premium price. In this case, easy-to-institute yet significant changes were made that caused the company's value to double in a four year period.


Such results are possible for any selling owner. If any owner is planning to sell their firm within the next 3-7 years, they do themselves a tremendous service by hiring an outside firm to do sophisticated, executive exit strategy planning. Many firms serving the middle market have expanded their academic, textbook valuations to include a less sophisticated form of exit strategy planning. It is my suggestion that an owner desiring to pursue exit strategy planning should be certain that the process will be conducted by a merger and acquisition firm that reviews all foundational aspects of the business. A solid business foundation places the power of negotiating leverage in the seller's hands.

Exit strategy planning is much more than a financial analysis. It is a significant tool that increases an owner's chance of realizing a premium-priced, all-cash deal. My Firm has found this tool most helpful in consummating acquisitions for selling owners. It can enable sellers to obtain the maximum funds for the many years that they have dedicated to their business. It should also result in their being completely securitized by a strong Definitive Purchase Agreement with the majority of risk related to potential post-closing liabilities being assumed by the acquirer. Exit strategy planning will help most owners of closely-held, middle market companies increase their transaction price. The process is so thorough in its scope that it forces an owner to think about the broad economic and business considerations that will impact their company’s future profitability. In and of itself, this tends to enable the company to enact operational changes that will improve its efficiency and increase its profitability, before the company is sold.


George Spilka and Associates

Email: spilka@georgespilka.com

Phone: 412.486.8189