Two shareholders in their 40s, were planning to exit XYZ, a testing company, with the goal of achieving a $7 million sale price. Before going to market, they mandated Red Swan Partners (RSP) to perform an Exit Readiness Assessment (ERA) to determine whether their company was ready to be sold.
The ERA scores and analysis revealed that the company's readiness for sale was below the minimum score to achieve their target price. This was mainly due to the lack of succession plan, lack of strategy, lack of capacity and high customer concentration.
But the ERA also revealed that the company also had significant potential to grow and gain market share.
RSP's recommendations were to delay the sale process for a minimum of 3 years, invest in new capabilities, invest in new technologies, automate the laboratory, recruit talent and reduce the dependency on the owners.
XYZ implemented the recommendations with the support of RSP who acted as a non-executive board member. The company improved their exit readiness by investing in new capabilities, automating their lab, and recruiting top talent. The new technologies helped the company to reduce costs, improve efficiency and increase market share. Additionally, the implementation of a succession plan helped to reduce the dependency on the owners and increase the company's value.
As a result, the company's revenue increased by over CAGR 25% and the enterprise value reached over $22 million.
The importance of conducting an Exit Readiness Assessment and redressing any issues before going to market can have a very significant impact on a company's value.