From Clarity to Close: Strategizing Your Ideal Business Exit

Bruce EckfeldtWelcome, everyone. This is From Angel to Exit. I'm Bruce Eckfeldt, I'm your host. Our guest today is Suren Kapse. He is an advisor, a coach, and a consultant working with companies on strategy and on exits. We're going to talk about the world of acquisitions and exits, and helping both the buy side and the sell side with strategies: figuring out who to buy, how to buy, and some of the things that go into valuation and into making successful deals.

It's a complicated process, as I think a lot of people know, but we want to get into it and give some insights for founders who are interested in the exit process: what the options are, what the processes look like, some of the things you need to be aware of, and hopefully some things you can do to have better, more successful outcomes. So with all that, Suren, it's a pleasure to have you on. Thank you for being on today.

Suren KapseThank you, Bruce. Hello, everyone. Good to be on the call.

Bruce EckfeldtBefore we dive into this world of exits and mergers and acquisitions, we'd love to get a little of your professional background. What was your background, and how did you start getting into the space of mergers and acquisitions?

Suren KapseSure. After my engineering degree and MBA, I went into an advertising agency for a year and realized it was not my cup of tea. So I moved to the technology industry, mostly in the business development function. I studied in India and worked in India for five years, and then moved to Europe. I was looking after five countries as a territory, based out of the UK: Germany, France, the Netherlands, Switzerland, and Belgium.

After a pretty good stint there, I came to the US to set up operations for Fujitsu, one of its consulting arms, and had a pretty good run with them for five or six years. Then I moved on and changed jobs. Fast forward, I worked with Accenture, moved to strategy consulting, mostly acquiring new clients. After that, I went back to India to look after an APAC role for large deals, $60 million plus. I did that for five or six years and came back to the US in 2013.

Then I worked with a French software product startup, because I'd had enough of working with large companies and wanted something new and interesting. It was exciting to work with a French company: a very different culture, software products, a different industry, a startup. And then after my 50th birthday, I said, "I am financially okay. Let me do something exciting, interesting, something different." I enjoyed the corporate executive life, the learning and earning and traveling all over.

I took six months off to introspect: who am I, and what do I want for the rest of my life? I came up with criteria. I enjoy interacting with people. What I bring to the table is understanding business from different perspectives. And I wanted to help people where I can, because when I needed help, there wasn't much available in those days. Putting it all together, I thought, "Let's become a business coach." So I became a certified business coach and executive coach.

My wife, meanwhile, had been an intercultural coach for almost 20 years. We were both running our own boutique shops, and we realized that both of us were spending 60% to 80% of our time selling and 20% to 30% delivering. Not a very economical business model. So we tried to combine and work together, and it worked phenomenally.

Now we do two things. One is post-merger and acquisition talent integration of the C-suite. The other is for smaller companies, around $2 million to $25 or $50 million: we help them prepare to make a successful exit. We work with many startups and small business owners. We have operations in the US and India.

Bruce EckfeldtExcellent. A couple of questions. First, how do you frame the different types of exits you see in the world, and which ones do you focus on? My joke is always that everyone's going to exit their company in some way. It might be feet first, but at some point you're going to exit. There are lots of different ways you can exit a company or have a transition in a company. How do you structure that world, or help categorize it a little?

Suren KapseSure. I'll answer in two parts. For the types of exits, the way I categorize it is that when you are small to medium size, people typically buy you for one of a few things. First, they'll buy you for the skills of your people. This is more in technology, or very unique skills. Say you have 100 people, or even 20 people, in AI. For any acquiring company, it's going to take a long time to acquire that many people, so buying is easy. So they'll buy for people.

Second, they'll buy for scale. Say the skill is not really special, but you have 2,000 people in a particular area. Then in one shot they become scalable and can serve so many more customers.

Third, they'll buy for the clients you have. Say I'm a company in a very specialized business, and there are 15 big players I want as customers. I've covered 10. The other five are taking me time, and you're already serving them. So I'll buy you and complete my coverage of the whole market segment to 100%.

And the fourth is assets. What kind of asset do you have that your acquirer would look at and say, "This is a great complementary asset. Building it would take me R&D and a lot of time. I don't have time. I have money. So let me put the money into these assets"? Geography, access, and so on and so forth.

So that's one part. The second part is how you prepare yourself. As a business coach, I focus a lot on clarity as the basic foundational step: why are you doing what you're doing? Why do you want to sell? Is it because you want your son or daughter to take it over, and they're not ready, so you want to exit now? Or you're getting old? Or you just want to get cash and travel with your family all over the world? Or you want to start another company or a foundation?

So be clear about why. If you want to maximize your money, then you look at exit strategies to maximize the money you get from the sale. That's simple, and probably many people do that. There are other people who say, and we came across one of these clients, "I want to exit because I'm done with that life stage of running a company. But my first criterion is that my people need to be taken care of. So I'm looking for a company that is going to respect and continue all the good things in my culture and add the good things they have."

There was a Midwest company we were consulting for, because a large company from Asia had bought them and was focusing so much on a performance-oriented culture. People were very unhappy with that, and we were brought in to do the cultural integration for them.

So clarity is the first step. Be clear about why you're selling and what you want out of that exit. Then you look in the market at what similar transactions have happened in your industry in the past and who your ideal prospective buyers are. Make a list of them, even 25 of them. Study why those deals happened and what made them successful.

Now you have criteria coming out of that: why these companies bought companies like mine, in my space, my competitors. Then you look at where you currently stand on those criteria. You will see there are some gaps, and you work toward closing them. Give yourself ideally three years, or at least 18 months, to prepare your company and position it so that when investors, VCs, PEs, or prospective buyers' corporate development people look at you, they love the metrics they see.

Bruce EckfeldtThis is the thing I run into when I'm working with these folks: it's sometimes tough to tell which option is going to be best for the company. Given an existing company with an existing leadership team, talent, product set, and client base, how do you assess which of those potential outcomes, which exit strategies, might be more or less possible? Are you looking at the client base and saying, "You have a really unique client base, maybe we should steer toward that one"? Or, "You've got some really unique capabilities that we can probably find a market for"? How do you assess which exit strategy might be possible for a given situation?

Suren KapseExcellent question. The first step, again, is: what were your primary reasons to exit? If your primary reason is maximizing value, then you go out into the market and see what the valuation of assets similar to yours has been in the past. Is the market today looking more for assets, a technology asset or whatever you've created, that's in demand in your industry? Or is it the people, the skills of people, that are more in demand? Which one gives you a higher valuation? Then you go to the companies that have bought similar companies in the past and see whether they're still looking for that.

One live case I can share quickly: in the Bay Area, there was a Microsoft systems integrator, probably 300 people, with two partners. One of them wanted to step back. He said, "I want you to buy me out," and the other said, "Then I'd be running it all alone. So let's exit." They called me and asked, "Can you help us sell?" I said, "I can, but before that, why are you exiting? What do you want out of this?" They said, "Nothing but maximum money."

So we set up the criteria. Based on that, who are the ideal buyers right now, in a one-year time frame, if this deal happens? What does this industry need? It came out very clearly that a lot of deals in this area happen for the people. And who is buying? Accenture, Deloitte, and similar firms, and Accenture paid a higher premium. So we went and studied every possible deal Accenture had done, came out with the criteria, applied them to their business, checked where they stood, and positioned around that.

They were short about 25 people of the golden number of people with that skill. So they went ahead and hired those people, and then the optics were fantastic to Accenture's buyers. They did the deal within five to six months.

Bruce EckfeldtSo it's the power of having a target and a strategy, knowing what they want, and then meeting those criteria. Otherwise, companies are trying to do everything. You're growing the client base, growing your capabilities, improving your margin, but not all of those are going to go into the valuation calculation.

Suren KapseAbsolutely.

Bruce EckfeldtWhen you first start working with companies, are there any standard, fundamental things you look at in terms of being ready to sell, being ready to exit? What are you looking at primarily?

Suren KapseVery good question. I came across a very recent case where two technocrats wanted to exit. They had an AI product, a robotic product. An excellent product, limited customers, but those customers loved them, and there was scope to grow. In my coaching way, I asked them some questions about why they wanted to exit.

They said, "Well, we're stuck in this market segment. A new market segment means we have to reach it and repurpose our product. A lot of work. We're not getting younger. We've done this for the last five years. And my partner is saying, 'Enough, we have enough money. Even if we get $1 million each, we'll be okay.'" I said, "Fine, if that's what you want, that's fine. But are you looking at what you created here? You have AI-powered robots that you're using for a particular industry segment and a particular use case. Very quickly, you could repurpose them for the healthcare industry or something else. It's there. It's doable."

So then, what is the real reason? Do you really want to exit? Or do you want to get some cash out? Or do you want to take the load of growth off? Going from a team of three to 30 was fun: the excitement of a startup, "Wow, I'm creating something new." From 30 to 300, now I have to learn delegation. I have to do prioritization, banks, cash flow, legal issues, PR, how to evaluate PR, all of that. And from 300 onward, it's a hugely different challenge. You need to grow faster than your company is growing. The company is growing in terms of numbers, but you have to grow as an entrepreneur, as a leader.

So we analyzed the business, and there was an opportunity to segment part of the business: separate out a couple of assets, bundle them, spin them off, and give them to somebody else who wants to run them, and then go into the new areas. In fact, just yesterday they texted me saying they have a term sheet from one company and they love it. So they are off. That load is off their plate, and they're no longer doing something they didn't want to do.

So they really weren't looking for an exit as such. I drilled down into why they wanted to exit. What they really wanted was to not run that part of the business. Now they're happy. They're getting good money, good cash, and still continuing with the newer segment where they want to go, and they got rid of the stagnated market.

Bruce EckfeldtI'm curious, as you get closer to conversations with a potential buyer, with term sheets going back and forth, what are some common challenges or pitfalls companies run into that, if they had thought about them two, three, four, or five years before, might have saved them some pain? Do you see any common challenges in actually making deals, or getting good valuations, or de-risking deals, that people could think about sooner?

Suren KapseSure. There are obvious reasons and not-so-obvious reasons. The obvious reasons, you can ask any GenAI tool, like ChatGPT or Gemini, and you will get them. Your financials have to be clean, your lawsuits all settled, your debt-to-equity ratio, all of those parameters. Legal due diligence: you can look at the criteria and make sure you're there. The financial criteria, the position in the market. If you're a BBB member, make sure the responses are there and complaints are minimized, all of that.

What is not very obvious is the kind of culture you have created in the organization. And when potential buyers and investors are talking to you, choose your buyers carefully too. Don't be desperate.

Bruce EckfeldtTell me more about that. When you say you want to choose your buyer carefully, how are you choosing?

Suren KapseSure. It's based on your reason. If you're looking for maximum valuation, then you want to look for somebody who's cash rich and desperate to grow their business quickly by acquiring what they need, which you have and they don't. Then money is the criterion. They're in a hurry, and they're going to look at it very clearly, only in monetary terms. So you show your financials to be strong.

And when you go and interact with them, you first earn their trust. You study them very well: the organization, their history, the key people involved. Look at their LinkedIn. Today, fortunately, we have all that data available. You can take that LinkedIn data and run it through GenAI: if this is the profile of this person on LinkedIn or Facebook or Instagram, what are their likes and dislikes? What kind of people would they like to deal with?

You don't change who you are, but you think about it, starting with what kind of greeting you will start with, what kind of clothing you'll wear, what kind of setting they'd like to meet in: at Starbucks, at the office, or one of the shared places. All those things matter to create a first impression. And when you meet them, make it all about them, not about you. In the first conversation, ask them questions. Show genuine curiosity, and say, "I'm here not to sell to you. I'm here to see if there's a match. Do I have something you want to buy?" That is going to give you maximum credibility and trust, and therefore the valuation and a very smooth transaction.

Bruce EckfeldtIt's interesting. I always say that valuation is what one company is willing to pay at one point in time. It doesn't matter what you think you're worth. It matters what they think you're worth, and sometimes that can be a lot more than you think. You don't realize that they've got to do a deal, or they've got money to spend because of their board, or they know there's going to be competitive pressure from their competition. So sometimes the valuation can be really different from what you expect, because you don't understand their metrics and their situation. Asking those questions and getting that understanding can be huge for valuation purposes.

Let's talk a little about the buy side, because you mentioned that you deal not just with the sell side but with the buy side. When working with buyers, how do you help them figure out what they want to acquire: understanding their needs, their gaps, their plans, and helping them figure out, "These are potential acquisitions you should be looking for, in these areas, with these capabilities"? Tell me a little about the buy side.

Suren KapseSure. On the buy side, typically it's the corporate development function for large organizations. Or if it's an existing mid-size company acquiring another mid-size company, we always start with a similar model: why are you buying? Why do you want to buy it? First, buy or make is the decision. "I want to buy this company because there are 50 people in AI." Okay, what is the average salary? How long is the cycle for hiring these people? How much revenue loss will happen if you do it yourself? That's one simple benchmark to see whether I should build it myself or buy it in the market.

The second one is, once you're clear: "Yes, I want to go and buy it. I don't have time. I have cash." Then set down the criteria for why you're buying: for the people, for the assets, for capability, for geographic access, market access, and so on and so forth. Once that's done, there are typically many boutique shops you can hire to do a search, but not so many when it comes to a $10 million deal size.

In fact, interestingly, one of our clients, and I'm their advisor as well, is GrowthPal.com. They are in the US and also in India, and they have entire databases of small businesses and startups. You give them the criteria, they run them with AI, and within a week they come out with four or five shortlisted companies, and then they start the conversations.

So you have your criteria for why you're buying, and you don't necessarily have to reveal all your cards to begin with. Go and talk to them, and based on what's most important to you, look at all of them and categorize them. But if the reasons are people, or even assets or market access, it's always better to ensure that the key people there are going to stay with you, and not just because of money or because of a contract. If somebody's staying for those reasons, they're going to be mercenaries. They're not really going to add great value to you, and you lose the money you invested in that acquisition.

So look for cultural alignment. If possible, talk to those people, get to know them, and understand how much cultural difference there is between that organization and yours. If there are gaps, find ways to merge. If there's too much of a cultural gap, think again about whether this is the best company to acquire. When we've seen major failures happen in the industry, it's primarily been because of cultural differences.

Bruce EckfeldtI totally agree. I was going to go down this path: how do you assess companies, and how do you assess culture? I agree it needs to be a fit. It's a two-part question. One, assessing cultural fit is just hard in general. It's a complicated thing. And two, you're dealing with a transaction process that can involve very limited interaction. A lot of times these transactions are done without much of the company knowing what's going on until very late in the process, or until post-deal. So as a buyer, given limited access, how do you really assess these things effectively?

Suren KapseVery valid question, absolutely. There are tools to measure organizational culture. But when you've started a dialogue with, say, two or three potential companies, you may not have access to conduct cultural due diligence. If they allow you, great. Then you hire cultural experts who do the assessment quickly and give you a map of what kind of culture they have, what kind of culture you have, and how big the gap is. And they'll recommend how much is required to bridge the gap. We do that as well. We do more in the cross-border, intercultural space: a company in China or Africa or Mexico, the US, India, all of that.

If you don't have access, we have developed our own methodology. We were hired by one of the large investment banks to do that. They had shortlisted three mid-size IT services companies, and we didn't have access. We're very discreet. There are ways and methodologies to look at the key leaders. Today, most of the information is available. People speak a lot. You'll see their social media profiles, what they commented on different posts, their own posts, the articles they wrote, their conference presentations, everything. You can really collect all of that data, and you need cultural experts who will read through it and infer, with fairly good confidence, what kind of culture this place has, what kind of people they are, and what kind of leadership they have.

How long have they been with the company? How are they working with each other, well and not well? You can talk to employees who have recently resigned, making sure their confidentiality agreements are not violated, and interview them. So very discreetly, you can do a bit of research, define their cultural profile and your cultural profile, see the gap, and be prepared to mitigate it very early. After the transaction, you conduct certain programs on both sides for key people, to help them understand each other and work in harmony, aligned toward a common direction.

Bruce EckfeldtTell me a little more about how, when you're working with the buy side, you go about making the market. You mentioned there are a couple of tools and services out there. You come up with a profile, you come up with a set of needs: "This is where you are currently as a company. Here are some areas where you could expand, or use acquisition as a strategy for getting capabilities, geographic focus, or client bases." How do you actually go out and find these companies? There are so many companies out there. There are companies putting themselves on the market, but then there are all the companies that are not on the market but might be interested. It's like hiring people. A lot of the time I don't want to hire the people who are on the job boards. I want to hire the people who are currently working. So how do you actually make a market for some of these things?

Suren KapseExcellent question. You reminded me of two case studies, success stories we had. One was a close friend of mine. He wanted to start a BPO company, and it was going to take a while to do from scratch. This is a little old, about 10 years ago. His business model was very simple: a BPO company with operations run from a low-cost country. So the business model itself is successful the moment I can implement it. The current cost in the US is X. I'm going to do it at 0.4X. With management overhead, and since not everything done in the US can be taken to India, you might do it at 0.5X, or even 0.46. A 40% margin from year one. It's fantastic.

Now, who's going to sell to him? How do we do this? He literally went and looked at an entire list of BPO companies, but he started from the bottom up, with the smaller ones. He looked at the profiles of the owners, and he found people who were older and had no succession plan.

He studied them and wrote to them, and approached them saying, "I'm here to ensure that your employees, your company, your legacy continue. If you want, I'll keep the same name. Tell me what you want. Come to my place in India. Meet my family. See the location where our people are, and see how we'll transition your existing employees. They will not lose their jobs. This is our strategy to get more market. We'll use them for knowledge transfer and reskill them for other kinds of work. And here is how the money will work when we get new customers and when you save money by doing this work."

One owner was 72 years old. He was concerned about his people, because his people were his family. He had no children. The deal happened, and my friend grew rapidly, from 200 people, I think, to 1,000. Then he exited. One of the large BPO companies bought them at a great valuation.

Bruce EckfeldtThat's a great story. You've mentioned this cross-border, cross-cultural acquisition work a couple of times. I'm curious, because I think we end up being so US-centric when we look at entrepreneurship and growing companies. I think it's just in the American DNA: this is an amazing thing, and everyone aspires to be a business owner and an entrepreneur. Is that true or not true in other countries? What have you noticed about how other cultures think about this, whether it's the nature of being a business owner, the actual acquisition process, or company culture? Are there big differences you've found working in some of these other countries?

Suren KapseYes, the answer definitely is yes. The US Constitution itself was, I think, geared for commercial success. My view is that the pursuit of happiness is one of the fundamental rights there. You probably won't see that in any other constitution. When I came from Europe to the US, in a lot of business meetings people would ask, "Where were you before? What are the differences you see between the UK and the US?" I said the UK is so focused on civilization. All I did over the weekend was see pamphlets to go to this festival in this castle, that castle, and so much talk about the Queen.

In the US, it's all about this new startup, this new company, the stock market. We talk about new business ideas. The whole culture in the US is geared toward commercial success, financial independence, excellent individualism. If you look at Asian cultures like China, India, and Japan, it's not that. In fact, when I grew up in the '80s and '90s in India, profit was seen as a bad word. Becoming rich was supposed to be a bad thing, because rich meant you were exploiting poor people. Bollywood, and some Hollywood movies too, portray that: if you are rich, it means you've done something wrong to get there.

So there are a lot of cultural differences, but things are changing a lot. In the emerging markets, governments have realized that the ecosystem for startups has to be built very well. So you see the number of new billionaires rising at a faster rate in China and India. The unicorns, startups with $1 billion valuations: the numbers are phenomenally high in India and China. It's happening in Europe, not as much, but they're trying. But China and India are definitely at the top of the list for startup ecosystems. They're creating their stock markets with separate exchanges where smaller companies and startups can now be listed and trade.

So there are huge gaps there, and the culture remains different, but the driving parameters for business are essentially revenue growth, profitability, and potential to grow. That is common in both places. The top leaders try to understand these different cultures and align themselves. When Pizza Hut went to India, they offered chicken tikka and aloo tikka, potato tikka, those kinds of toppings, and a much longer list of flavors, because India is full of spices. And Pizza Hut is actually a premium restaurant in many cities in India. For us, it's not. So they culturally aligned there, and a Pizza Hut location in India might well be more profitable than one in the US. Pretty good chance.

Bruce EckfeldtThat's interesting. If I'm a founder with a reasonably successful company, looking for an exit, what does the international market look like these days? Should I be looking internationally for potential acquirers, or am I still looking primarily in the US?

Suren KapseExcellent question. Bruce, depending on which industry you're in, you would probably benefit from looking at international buyers. The reason is that the US is an extremely mature market. With any product or service, it's very difficult to be unique, pioneering, and innovative for too long. Somebody comes up with a copycat, or somebody comes up with a better, smarter model than you, and there's the technology challenge. The US has always been at the forefront of new business models using technology, models like Uber and Zomato and all of that.

If you go outside, there are many companies that want access to the US market. They continue to try to enter the US market. Another client of mine, in the IT services industry, after I helped them, I said, "You need to go to a business broker now." And they asked, "Why not look at all the other countries too?" They extended their search, and they found one boutique shop that said Japanese companies are giving much higher valuations to US companies, because they want to enter here. They're a new generation. They want to understand the US market and US business culture. My client was small, so $2 million or $3 million didn't really matter to that company. The deal happened very quickly, and they got the highest valuation compared to what they were getting in the US. So go international, for sure.

Bruce EckfeldtInteresting. Tell me a little about timing, whether it's where the company is in terms of size or maturity, or just the timing of the market. What's your philosophy or strategy for helping companies figure out when they should sell? Are there windows or criteria you look at for when a company is ready to actually be sold?

Suren KapseIf we're talking about an owner, or a group of two or three people who own a company, then it's pretty much your personal reasons and where you are in your life cycle. When do you want to exit? You've done enough, and you don't want to do the same thing anymore. For that reason, you plan in advance, at least three years, or if not, then 18 months minimum.

But if you're a company with a group of investors and a board, and you're looking at exiting, then I go back to: why are you exiting? If you want cash, what are you going to do with that cash? Is that plan ready first? Work backwards from there. When do you need that money? What is your plan to invest it into, and what for? Then work backwards from that.

Timing-wise, you again look at the industry parameters. If right now there aren't many new deals happening, and demand for your products or your people's services is not that high, then you might want to lie low a little. Look at the economic cycle. Look at where your industry is with respect to the economic cycle, because some industries lag behind and some are ahead. So you look at when your industry is going to get the valuation for the thing you're exiting on, which is your asset.

If you're selling for assets, or selling for people, you work around that, see when you can optimize or maximize your returns, and then choose the timing. If you want to exit, the sooner you start thinking about and planning for it, the better. It could be that you've done everything right, and then you wait for the right moment. You can wait six months, 18 months, or even a year, but wait for the right time. Then you get a very efficient, quick, maximum deal in your favor.

Bruce EckfeldtAs an owner, how would I gather some of that information about what's happening in the market, what's been sold recently, what some of these valuations are, what people are buying and why? How do you get access to this as an owner?

Suren KapseThere are quite a few websites tracking this now. There are plenty, at least five or six that I know of. There are newsletters and publications, but they publish what is not confidential, what's generally available in the public domain. You need to go and attend conferences and seminars. The smaller the better. Go and meet the people who attend them. Try to get speaking engagements if you can. Talk to 10 different business brokers from all over the place, global and within the US.

When you talk to people and ask the right questions, you get the real data: why something is happening. What comes out in the news is probably a half-truth, or reports only half the data. What really happened behind it could be very different, and they position it that way for public interest and for reputation. It's very important to understand what's happening that is not going to be published.

So go to conferences and seminars. Today, with LinkedIn and all the social media, you can be invited to many webinars and seminars, and you'll find the right people there. Say it's a Monday seminar, and somebody's talking about how they help their clients sell faster. You look at the chat and see people asking questions. There could be a buyer. You can smell a serious buyer based on the way they ask questions. Take down the person's name, search the internet, and reach out. Every day, I can guarantee I can get you 10 names like that just by sitting at my computer, and then go and reach out to them, genuinely interested in trying to do something good for them and for you.

Bruce EckfeldtSuren, this has been great. If people want to find out more about you and the work you're doing, what's the best way to get that?

Suren KapseI think our website is the best way. It's aptculture.com. "Apt" as in appropriate, A-P-T, and "culture," aptculture, one word, dot com. And my email is my first name, suren@aptculture.com.

Bruce EckfeldtThat's great. I'll make sure all that information is in the show notes. It's been an absolute pleasure. Thank you so much for taking the time today.

Suren KapseSame here. Thank you for inviting me. Great talking to you. Bye, Bruce.