Selling a business is a complex process that requires strategic planning and meticulous execution. The sale of EntryPoint Consulting to KPMG provides an exemplary case study on how to prepare a business for a successful and profitable exit.
At a time when professional services consultancies of a similar size to EntryPoint were attracting average EBITDA multiples of 6-7x, the company was sold for 12x EBITDA. This may lead to assumptions that the vendor had to accept significant compromises on the deal terms in order to secure such a high price.
Far from it. In fact, the deal featured a significant upfront cash payment, no earnout structure and, crucially, enabled EntryPoint co-founder and sole shareholder Pete Martin to make a full exit which did not require him to remain with the business post-sale. Here’s how he did it.
1. Recognise the Right Time to Sell
Martin decided to sell the business when he realised he had become “bored” and was ready for new ventures. Recognising the right time to sell is crucial; ideally, it should be when the business is experiencing growth and upward profitability.
2. Develop a Strong Leadership Team
One of the foundational steps in preparing for a sale is developing a capable leadership team that can operate independently of the owner. Martin focused on professional development within his team, training consultants to handle sales cycles without his direct involvement. This not only empowered his team but also made the business more attractive to potential buyers, showcasing that the business could thrive without him.
Key Actions:
- Identify potential leaders within the organisation and invest in their development.
- Delegate responsibilities and gradually reduce owner involvement in day-to-day operations.
3. Systematise and Document Processes
Standardising and documenting business processes ensure operational consistency and reliability. EntryPoint created templates based on existing contracts, proposals, and statements of work, which provided a flexible yet consistent framework for different clients.
Key Actions:
- Conduct a thorough process mapping and documentation exercise.
- Develop standard operating procedures (SOPs) for all critical business functions.
4. Create Recurring Revenue Streams
A business with recurring revenue streams is more attractive to buyers due to its predictable income and lower risk. EntryPoint developed a sanction party screening service that became a significant recurring revenue stream, accounting for 30% of its business.
Key Actions:
- Identify opportunities for creating recurring revenue within your business model.
- Develop and market these services effectively to build a loyal customer base.
5. Build and Leverage Relationships
Having strong industry connections can significantly impact the success of a sale. Martin’s background as an IBM Executive and SAP VP of Sales gave him valuable connections at KPMG. By exploring potential partnerships, he was able to gauge interest and eventually secure a deal.
Key Actions:
- Network within your industry and build relationships with potential buyers.
- Explore strategic partnerships that could lead to acquisition discussions.
6. Negotiate Favourable Deal Terms
Negotiating deal terms is an art that requires both strategy and flexibility. Martin started with a high valuation based on 2x the company’s revenue (around 25x EBITDA) and negotiated terms that aligned with his goals. The final deal included a significant upfront cash payment and no earnout, allowing him to make a full exit.
Martin offers a priceless nugget of advice for business owners on this point – never allow the deal terms to be separated from the price. Martin insisted that the deal terms were in place before the two parties got into offers and counter-offers. This level of trust enabled Martin to get the terms in place before a price was fixed.
Key Actions:
- Set clear goals and priorities for the sale process.
- Be prepared to negotiate and adjust your expectations to reach a favourable agreement.
7. Prepare Thoroughly for Due Diligence
Due diligence is critical to ensure both parties are satisfied with the terms and the business’s condition. Martin’s transparency and willingness to address KPMG’s concerns about his involvement led to a successful deal closure.
Key Actions:
- Prepare comprehensive due diligence documentation covering all aspects of the business.
- Address potential buyer concerns proactively to build trust and confidence.
8. “Shape the Story”
Effectively communicating the value and potential of your business can significantly influence its perceived worth. Martin succeeded in “shaping the story” of EntryPoint, convincing KPMG of its revenue potential and strategic fit.
Key Actions:
- Develop a compelling business narrative that highlights growth potential and strategic value.
- Present this narrative consistently to potential buyers to enhance the perceived value.
Conclusion
The sale of EntryPoint Consulting to KPMG exemplifies how careful preparation and strategic execution can lead to a successful and profitable business sale. By recognising the right time to sell, developing a strong leadership team, creating recurring revenue streams, leveraging relationships, negotiating favourable deal terms, conducting thorough due diligence, and effectively shaping the business story, owners can significantly enhance their chances of achieving a favourable outcome.
