Key takeaways
- A good exit is designed from day one, covering the product, the legal entity structure and the documentation
- Selling shares and selling assets have different tax consequences, and buyers and sellers often want different things
- M&A needs a strategic rationale and an integration plan that can actually be delivered
Chapter 29 Exit Strategy Planning
This chapter argues that the exit should be considered from the start of the project, because the product design, company structure, cleanliness of documents and operating track record all affect the sale price. The options range from a trade sale to a strategic buyer, a financial buyer, an IPO, injecting assets into a REIT, refinancing to pull out part of the capital without selling, and holding to receive long-term cash flow. Each route differs in the proportion that can be realised, the timing, the cost and the control that remains.
Timing depends on the market cycle and the age of the asset. The book views the hyper-supply period before the market softens as a good window to sell, while in a recession one should not sell unless necessary. For hotels and rental properties, value usually improves once operating results have stabilised.
Value enhancement before a sale should start 12–18 months ahead, through improving revenue, cutting costs, resolving disputes and building a historical record. The final 3–6 months are then used to prepare the data room, audited financial statements, an independent valuation and an information memorandum. The sale process runs from teaser and NDA through indicative bid and due diligence to the SPA.
On tax, an asset sale involves CIT at 20% of profit, SBT of 3.3% when real estate is sold in the course of business, and transfer fees. A share sale involves no transfer of assets, but the buyer takes on the company's hidden liabilities. The net proceeds of each route should be calculated, followed by continued planning on succession and the management of the owner's assets.
Chapter 30 M&A and Portfolio Restructuring
This chapter treats M&A and asset sales as tools for managing a portfolio. Good reasons include entering a new market, adding a product line, acquiring capabilities, buying a land bank or creating synergies. Cases where it should not be done include having no clear strategic rationale, major cultural differences, unreasonable valuations, or funding that would harm the core business. Selection starts with a broad long list, then filters by strategic fit, asset quality, team, valuation and difficulty of integration.
Due diligence is divided into commercial, financial, legal, tax and ESG workstreams to confirm earnings quality, off-balance-sheet debt, land ownership, outstanding taxes and environmental liabilities. Valuation uses DCF, comparable companies, precedent transactions and sum of the parts, as well as real estate-specific methods such as NAV, cap rate and residual land value.
Deal structure is chosen from cash, shares or a mix. An earn-out helps bridge a price gap, but disputes often arise if performance is not clearly defined. Post-merger integration is where deals most often fail, so there must be a Day 1 plan, a 100-day plan and a team responsible for integrating systems, people and culture.
On portfolio restructuring, the book recommends reviewing assets regularly and then deciding whether to sell, carve out, spin off, run an MBO or inject into a REIT when an asset is not core or when another owner would suit it better. Sale proceeds should have a plan for reinvestment or debt repayment, in order of priority, based on the hurdle rate and the group's liquidity, rather than being left idle or invested in whatever opportunities arise.