Jason Purcell, chief executive and founder of First Capital, says there appears to be about commonly believed six myths surrounding exits, which entrepreneurs would be well advised to ignore.
It is commonly believed that the merger and acquisition market is booming and that therefore the right time to sell is now, however this is not the whole picture, Purcell argues.
He says that a closer examination of the statistics shows that the market is strong and that there is little evidence that the bubble will burst any time soon, therefore, business owners shouldn’t hurry to the exit.
Also, entrepreneurs must not believe the hype created by huge exits such as MySpace and instead should ‘be realistic’ about their returns.
‘Size doesn’t matter’ is another myth that Purcell wants to end who instead argues that it is crucial to get the timing of your exit right, particularly if your firm is growing quickly – exiting early means that you could get a lower return on the business.
Also, Purcell argues that it is ‘simply not true’ that firms must either sell to the US or that the European venture capital market is dead.
“The figures show that 74% of UK companies are bought by other businesses in this country – so the idea that it’s US firms that do all the buying is simply false,” he said.
Furthermore returns in the European market are also higher than in the US: investments across the Atlantic will on averge produce about double the initial investment, whereas on the continent the realisation is closer to three.
Finally, Purcell argues that planning is key to a happy exit and the attitude that ‘it’s all down to luck’ is just not true.
“It is important to develop a good relationship with your buyer and to understand them,” Purcell says.
“Also, many companies also get distracted when they are preparing for a deal, but it is important to keep driving the business forward as the process of selling can be long.
“Get your accounts in order and make sure the buyer is comfortable with what the business is.”
His advice follows research conducted by over a period of seven years and which examined over 8,000 transactions.
© Crimson Business Ltd. 2006