Insights on the Liquidity Event Process
Leadership, Planning Are Keys to Liquidity
For the leaders of privately owned companies, the decision to conduct a liquidity event can be both exciting and overwhelming. After all, in exchange for enhanced funding, executives have a new-found need to adopt formal corporate governance practices and provide additional shareholders with access to, among other key financial factors, compensation agreements and business plans.
J.H. Cohn recently spoke with consumer products, hospitality, and retail industry experts to gain their insight about the liquidity event process. Among the key pieces of insight they provided:
Understand your Objectives
Introspection about what you hope to get from the event is crucial. Is the goal to sell the company, bring in a partner, or to get a capital infusion? Being honest adds an extra layer of self-protection. Stated one participant, “Every day you get up and open the doors, you have to make sure your plans are still relevant.”
Be Intimate with your Business Plan, and Know your Differentiators
Know every detail of your business plan, know how you’re different from the competition, and be able to communicate the distinct differences. Being able to succinctly explain these details will improve your relationship with advisors, who will be in a stronger position to recruit investors.
Seek Out Cultural Similarities
Picking outside advisors that your organization is comfortable with and that view your organization as an important piece of its portfolio is crucial, as is overall industry knowledge. As one executive put it, “You don’t want that firm to go to school on you or your industry.”
Understand the Role of Your Advisors
Know what it is they seek, why they seek it, and be prepared to comply. Frequently, the quest to get to know your company begins with materiality and a request for up to three years’ worth of financial statements. For illustration, the investment bank’s role is to maximize value and partner with the right companies for long-term value creation and pricing. For them, “job one” is to assess the situation and give candid feedback, discover what types of transactions are open, and evaluate where to get the highest valuation. Said one banker, “If we don’t look confident answering an investor’s questions, it’s going to be hard for us to argue for higher valuation.”
Strong company management makes a difference to advisors and to investors. “At the end of the day,” stated one panelist, “you may have a good company, but the wrong management can make it go the wrong way.” Added another participant, “The biggest mistakes I’ve made are betting on people who weren’t as they turned out to be.”
Run Your Company Like it is a Public Company, Even If It’s Not
The earlier you run your company as a public company, the more interested a private equity firm may be and the more likely an underwriter may be in taking a leap of faith with you. Run yourself like a public company, and public and investor value will increase.
He May be your Best Friend, but that Doesn’t Mean He Belongs on the Board
Board of director integrity was another heavily discussed topic, as was the need to ensure the formation of an independent board—one with outside advisors that have a strong influence and will align management and investors. The “right” board will know your industry, your business, and the market, and will be there to help you make critical decisions. “It all comes down,” as one panelist explained, “to the people and the relationship.”
“The stakes are high when executing a liquidity event. You need to have the right people in place, the right processes, and the right technology,” said Scott M. Sachs, CPA, J.H. Cohn’s Southern California regional managing partner. “You need to understand your value and be aware of the behaviors that will have to take place both before and after your event occurs. Having the right advisors is critical. You need partners who understand your industry and have the experience to make your event successful and profitable.”
To download a copy of J.H. Cohn’s Going Public: A Decision Maker’s Guide, please visit us online at www.jhcohn.com/IPO.