Exit strategies: how to get the timing and valuation right

Explore some of the key learnings from our 2021 Portfolio Day, which saw a panel of experts discuss the exit strategies proven to succeed.

29 September 2021

Exiting a business, whether by trade sale, private equity deal or initial public offering (IPO), is the goal for many entrepreneurs. More than 100 BGF-backed businesses have achieved an exit, but how do you do it successfully? Ben Barker and Jane Vinson, heads of portfolio for the North and South at BGF, hosted a panel at BGF’s Portfolio Day 2021 to discuss exit strategies. Here, they summarise the key learnings.

When should you start thinking about exit strategies?

This is one of the main questions we get asked by entrepreneurs in our portfolio. Our panellists were united in the belief that it’s good to consider exit strategies at an early stage.

“You can’t start early enough,” said Fiona Lowry, founder of The Good Care Group, a former BGF portfolio business that was sold to Sodexo UK in 2019. “Ideally, you should make your exit part of your strategic thinking from the beginning. But you should also be flexible and willing to change your plan based on how you are perceived by the market.”

John Davison, chairman of window blind business Mzuri Group, which BGF backed in 2021, agreed. Building a business is like going on a car journey, he said. Everyone should know what the end destination is, not least because some stakeholders may want to get out at different times. “You need a consensus,” he said. “The more you talk about it, the better.”

How do you know when it’s the right time to exit?

The truth is that it’s not always possible to know when to exit, since there are so many factors to consider – for instance, market conditions and the economic cycle. Our panellists said this uncertainty underlines the importance of preparation and flexibility.

“The environment can change really quickly,” said Ronnie McCombe, chair of engineering business Hydrock, which BGF backed in 2018, and chair of Setfords Solicitors, a BGF-backed business that was acquired by a private equity buyer in 2021. “It’s a good idea to start a dialogue with the market, get knowledge of potential trade buyers and private equity houses, and think about who would be a good fit.”

Alan Sampson, CEO and co-founder of software reseller Solid Solutions, said he was able to anticipate his company’s successful exit in 2020 because his industry was in consolidation. “We were constantly looking at different trade options,” he said. “We were having conversations, maintaining relationships. Our ideal was to get several potential buyers bidding at the same time.”

How important are corporate financial advisers to the process?

The panellists agreed that advisers can offer crucial expertise, so long as the right ones are chosen.

“At first, we thought we could do everything ourselves,” said Sampson, recalling the preparations for his company’s exit. “But when we looked more closely, we realised there was expertise out there that could help us. Our advisers added value in ensuring that what we set out to do from outset is what we achieved. If we’d gone off alone, we might not have known what the endgame was.”

“Getting the right adviser is imperative,” said McCombe. “As a board, you should think through the type of process you want and pick the right adviser accordingly.”

How do you generate interest from potential investors?

The simple answer is that great companies always attract attention, but the panellists agreed that engaging with the market in a thoughtful way can raise your profile – and boost your potential valuation.

“You can increase your profile in the market using things like conferences and awards,” said Lowry. “Start engaging in active conversations when you’re about a year off. You need to understand what’s in it for a potential investor, and why a deal would make sense for them.”

She added: “I like working with a salesy corporate finance person who can be between you and the potential buyers you’re dealing with. If you do it well, you can go up about 10% in valuation by increasing competitive tension.”

Sampson said: “It’s about keeping the whole spectrum open – making sure everyone is aware of who you are and what stage you’re at.”

How should you engage with private equity?

The panellists agreed that private equity can be a good choice for an exit, but suggested that relationships with different potential investors should be managed carefully prior to a deal.

“Private equity houses love to meet and have conversations,” said McCombe. “But to my mind, you should engage with the market on a qualified basis. As a chair, I have an important role to play as a filter. In my experience, if CEOs respond to each private equity request, they would have a half day meeting every week. It has to be managed.”

Davison echoed the point. “With the CEOs I work with, the agreement is that I deal with private equity requests [as chairman], summarise them for the board, and then we decide how to proceed.”

What should you do if an exit goes wrong?

Even with the best planning, exit strategies can sometimes go off course, perhaps due to external events beyond the control of the management team or shareholders. This can be demoralising, but the panel agreed that a failed exit is not the end of the journey – it’s an opportunity to regroup and try a different approach.

“If an exit process has failed, you have to sit down and talk, think about what to do to go forward, and make sure everyone buys into the new process,” said Davison.

Our experience at BGF is that a failed exit can sometimes be a blessing in disguise. In 2021, BGF completed a successful exit of data security business Semafone, which was acquired by private equity firm Livingbridge. The exit achieved a 6.4x return, significantly higher than the return expected when the company initially went to market some years earlier. Sometimes it pays to wait.

What should you do to prepare for an initial public offering (IPO)?

There have been three IPOs of BGF portfolio businesses to date – a relatively small number compared with a total of more than 100 exits; however, we expect more to come.

The preparations needed are similar to any kind of exit, but they are arguably more rigorous given the greater level of scrutiny that is likely to be applied to a business before it floats.

Jane Vinson, head of portfolio, South for BGF, explained that board composition is crucial. A business may need to appoint a number of non-executives prior to a listing, and it can take time to find the right candidates. The business ought also to consider what elements to include in the exit, such as rollover, or some kind of deferred payment.

BGF has in-house expertise that can help with IPO planning. “We have a fantastic quoted team so if there’s any inkling you might float, talk to us,” she said.

How can you make sure your exit strategies succeed?

A successful exit means having all the pieces in the right place. It can be a long, challenging process, and there are likely to be bumps in the road.

Davison talked about removing the “grit” that can impede the process – this means ensuring all your documentation is in order such as financial information, legal and commercial documents, employment contracts and more.

Lowry, meanwhile, discussed the emotional side of an exit. “The exit process is all-consuming. When it ends, there’s a wonderful feeling of relief – you’ve delivered on your responsibility. But there’s also grief. You’re leaving the business in someone else’s hands, and you miss it desperately.”


The panel, ‘Taking the next step – lessons from exits’, took place at BGF’s Portfolio Day on 22 September 2021, hosted at the Southbank Centre in London. Read about the day’s most valuable insights.

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