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Ready to Exit – conduct a feasibility review first!

Sorcha Hermon

Nov 28, 2023

Exit Strategy 3

The first of our three-part series examines the critical initial step when getting ready to exit: feasibility.

Author: Sorcha Hermon In December 2022, Sorcha moved into the M&A team in an analyst capacity, where she contributes to Pivotal Scientific's successful buy and sell side activities.

Sorcha Hermon

When it comes to mergers and acquisitions (M&A) within the life sciences industry, we believe in simplifying the process into manageable modules. Companies can choose to tackle these sections sequentially or concentrate on one area at a time. Our recommended modular approach—Feasibility, Engagement, and Completion—offers a gradual, step-by-step process enabling businesses to make any necessary changes over time.

  • Feasibility – pre-approach work to ensure full alignment between you and Pivotal Scientific Limited. 
  • Engagement – Development of target long list of potential companies and refinement to businesses we (Pivotal Scientific Limited and you) approach and engage with.
  • Completion  – from term sheet to deal closure

This blog is the first of our three-part series and examines the critical initial step: Feasibility. This phase, focused on making your company ‘fit for sale’, involves an in-depth review of your business, its documentation, and processes as this is required to establish where your business is now. During this stage, we would recommend you focus on:

  • Your financial structure (capital, balance sheet, Income statements, ratios etc).
  • Your commercial plans past, present and future.
  • Your customer base.
  • Your operating model and the ability to integrate it effectively.

In our M&A experience, we cannot stress enough the potential loss of value a company may incur by being unprepared for the process of selling. It is imperative to complete the necessary pre-work beforehand to ensure that you can secure the best price for your company when the time comes to sell. The feasibility stage allows time for a company to undertake the changes and improvements needed to be ready to exit.

When conducting the feasibility stage, the objectives you aim to achieve are as follows:

  • Assessment – is the company able and ready to proceed for sale and is there a clear business rationale (funds, investments, expectations in terms of returns etc.)?
  • Preparation – what does the company need to do to be ready for sale.
  • Valuation – have you carried out a realistic valuation range for your company?

Sellers, especially in the biotech industry, believe that the buyer is almost as important as the price. There is an underlying view that selling to the industry is naturally better than private equity, not because the buyer is a fund manager or accountant, but because of the perceived empathy of other ‘scientists’ buying businesses owned by ‘scientists’.

Buyers, when making offers, are obligated to ensure that the price paid conforms to the business plan or key performance indicators(KPIs) they believe they can achieve. It is often overlooked that the most critical component is the integration and transition of the purchased business. Most value is eroded due to poor transition, not because buyers overvalued a business.

If you are interested in our M&A services or wish for us to conduct a feasibility review on your company, please contact us. The feasibility phase concludes with an agreed-upon plan of action, and the process typically takes 3 to 4 weeks to complete.

Over the past four years, PSL has undertaken 19 M&A ‘sell’ transactions and completed over 30 ‘buy-side’ projects. We have presented over 500 companies as potential targets and conducted at least 180 ‘deep dives’ into companies, allowing buyers to focus their M&A activities on the right targets.

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