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the highest multiples seen pre- 2020 ; and the most attractive businesses to buyers tend to include “ exhibitions plus something ” – 1-2-1 meetings , digital content , memberships and / or conferences .
Buyers are also looking for structures that allow them to offer de-risked premium valuations . We are now seeing a new ‘ rollover ’ structure , largely being offered by US private equity-backed platforms , which adds a risk / reward element to the deal .
Rolling thunder ? PE exit timing post Covid The majority of PE platform businesses exit to other PE investors : typically , most of the management team will stay on and build with new
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backing . At any one point , different platforms would be at different stages of their investment cycles .
Coming out of the pandemic , those investment cycles are more aligned . Investors were unable to deploy significant capital for two years , and need to do so in order to generate the required returns . The PE financing model depends on embedding and then generating a return from new acquisitions , so M & A activity by PE-backed event platforms tends to slow down in the last 18 months prior to exit . In that final period it is mainly about bolt-ons to existing portfolios .
We expect a continued
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surge of PE-backed acquisitions during 2022 and early 2023 ; but with most of the active platforms expected to exit between Q4 2023 and Q4 2025 , a slowdown in activity going into H2 2023 at the latest .
Should business owners bring forward exit plans in order not to miss out ? Not necessarily . If your business isn ’ t making sufficient ebitda ( profit ), then it doesn ’ t matter how many buyers are in the market , your valuation is likely to fall short of your ambitions ; and if your company isn ’ t sale ready from a performance , reporting and financial management point of view , you risk starting a failed process or ending up with a price chip .
However , if you are targeting one or two PE-backed buyers in particular because of sector , geographical or business model fit , it ’ s worth finding out what their exit timelines are as that may well affect your exit timing .
Understanding rollover Coming out of the pandemic , we ’ ve seen a ‘ rollover ’ structure proposed to sellers on multiple occasions , mainly coming from US investors . This is like a shadow version of the kind of deal that a management team gets when PE invests directly in their platform .
In this structure , a buyer acquires a majority share in the business ( whether in one transaction , or using an earnout structure over multiple years ). The entrepreneur retains a minority share in their company , which then
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operates as a subsidiary of the PE platform . That minority share is then acquired on the day of the buyer ’ s next exit at a valuation multiple ( of ebitda / profit ) related to the platform ’ s multiple , in other words offering the seller an opportunity to get a significantly higher value for that last tranche .
The benefits for the buyer are clear : They mitigate the risk of entrepreneurs leaving the business prior to their next exit , and have continual alignment on profit growth up until that point .
For sellers , the picture is more nuanced . You have to do the maths -there are different ways to value both the buyer ’ s and your own company ’ s value on the date of rollover . You also have to be clear about your willingness to lose control of exit timing ; so make sure you are well advised .
Alignment Selling your business into a private equity-backed environment can be very energising . The three to five year cycle focuses minds , offers an opportunity for entrepreneurs to align closely with buyers , and very often creates new career paths for talented management teams .
Ensuring that you are truly aligned on a personal and strategic level is key . CEOs of trade buyers are intelligent , charismatic and persuasive people who will sell you a compelling vision . If you ’ re thinking about selling to a PE platform , it ’ s wise to get to know their model , the synergies and their investment horizons . EN
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