Top tips from across the pond on planning a successful liquidity event

By Richard J. Salute, a friend of Smith & Williamson and a Director at J.H. Cohn, based in New York.

For privately owned companies, a liquidity event – giving up equity to finance the business – can be both exciting and overwhelming. On the one hand, you have access to enhanced funding to grow the business. On the other, there will probably be a new set of shareholders, an independent board of directors and regulators to whom you are now accountable.

J.H. Cohn recently hosted a panel debate to gain insight into the liquidity process. Panel members included leading US private equity firms, investment banks, and legal and financial advisers. Below are some of our top tips for making the transition as smooth as possible, based on their expert views.

1. Understand your objectives

Be clear about what you want before entering any equity relationship. Is the goal to get a capital injection, bring in a partner or sell the company? Every day, you need to make sure your plans are still relevant.

2. Know your differentiators

Know how your business is different from the competition; the business model creates business value. Communicate the distinct differences to your advisers. This will improve your relationship with your advisers, who will be in a stronger position to attract suitable investors.

3. Seek out cultural similarities with advisers

Choose an adviser that is a good cultural fit and which views your organisation as an important part of its portfolio. They should have good knowledge of the industry in which you operate, having done a significant number of transactions in that area already – you don’t want them to use your business as a training ground.

4. Understand the adviser’s role

Establish what it is your advisers want and why they want it. Then, be prepared to comply. Some advisers will be satisfied with a simple financial statement review, while others will need a full financial audit. Be open and honest and relinquish the information requested.

5. Management matters

Strong company management makes a difference to advisers and investors. At the end of the day, you may have a good company that is well positioned, but the wrong management can take it in the wrong direction.

6. Run your company like a public company – even if it’s not

Start running your company like a public company. You’re more likely to have interest from a private equity firm and have an underwriter take a leap of faith in you if you’ve had your ‘house cleaned’ and put a board of directors and segmented committees in place.

7. He may be your best friend but that doesn’t mean he belongs on the board

An independent board, with outside advisers that have a strong influence and will align management and investors, is crucial. The ‘right’ board will know your industry, your business and the market. They will understand your value and be aware of the ‘behaviours’ that will need to take place both before and after your event occurs. Ultimately, they should have the knowledge and experience to make your liquidity event successful and profitable.

With thanks to Richard J. Salute, who can be contacted on 001 516 336 5501 or email rsalute@jhcohn.com

J.H. Cohn and Smith & Williamson are fellow members of Nexia International, a global network of independent accounting firms.

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By necessity, this article can only provide a short overview and it is essential to seek professional
advice before applying its contents. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Smith & Williamson Limited
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.

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