Tom Simpson
At Pemba, we recognise that the initial cash consideration (the “bullion”) is often not the only factor a founder considers when looking to either partially or fully exit their business. Business owners will often tell me that they aren’t yet ready to consider an exit for a number of reasons ranging from needing more time to achieve their objectives and realise full value potential to something as simple as not knowing what to do next! With over 20 years’ experience partnering with founders to achieve their objectives, the team at Pemba Capital Partners are well equipped to assist business owners in these situations.
Why now? I am not ready!
Whether it is in two years’, five or ten, shareholders typically have a preconceived idea of when they wish to exit their business. At such time, they plan to start “getting the house in order” and exploring their sale options. So why partner with Pemba earlier than this point in time?
As a growth investor, we partner with founders and management teams to help accelerate growth whilst working alongside each other towards achieving a premium valuation on exit. We invest a significant amount of time upfront with founders and management teams, listening to their objectives and learning about what size, what shape, and what time the business needs to achieve this premium valuation. We then work backwards, exploring the different methods in which we can assist to accelerate the process to get to this point more quickly. Examples of how we achieve this include:
– providing serial rounds of capital to accelerate growth initiatives such as international expansion, marketing and sales
– utilising our dedicated Originate team to identify and source acquisition opportunities to help scale the business inorganically
– utilising our experience and networks to further optimise the businesses structure in preparation for an exit. An example of this is sourcing additional management resources in anticipation for an exit by the founders
Naturally, all this work to get to the point whereby the house is “in order” can take significant time and resources. It is crucial therefore that the planning for this event occurs well before the point in time in which the business owner thinks that they will be ready to sell.
But what will I do?
Naturally, different shareholders have different personal and professional circumstances, objectives and aspirations. Some are happy to completely sell out and play golf, others are not yet ready and unsure as to what they would do! The beauty of the Pemba investment model is the flexibility that comes with working together to structure a transaction that accommodates the wishes of all shareholders.
If a business owner tells us that they are not yet ready to step away, this aligns perfectly with our partnership style of investing. As a partnership investor, it is our preference that founders, and management teams partner with us on the next stage of business growth. When it comes to operational behaviour, we are interested but not intrusive and see ourselves as the experienced mountaineers assisting founders to the summit (Pemba is a common Sherpa name). Under the “two pay day” structure, we typically provide an upfront cash consideration and encourage shareholders to reinvest the remainder to share in the upside of a larger group exit in 3-5 years. This enables business owners to retain a meaningful ownership stake and continue to operate their business alongside an experienced partner but also de-risk through the day one cash component.
At Pemba, we are always looking for opportunities to partner with great founders and management teams that are thinking about their next move. Please Inmail me if you would like to find out more about our partnership model and how we could assist your business.
Photo by Nick Fewings on Unsplash
