Friday, September 14, 2018

When is the Best Time to Sell my Business?

This will be one of the most difficult questions for business owners to answer.  Since your business is most likely your largest asset it will most likely be the largest transaction you will ever execute.  There are many questions you will need to answer to be comfortable that now is the time.

Has the company outgrown your skill set?  Can you take the company to the next level without incurring massive amounts of debt?  Maybe you don’t want to incur more debt.  Have you gotten to the point where you just don’t want to work 120 hours a week and have all the pressure associated with owning your own business?  Remember the two great American dreams are to own your house and your own business; but in both instances there is a time to downsize. Just a few more questions and then some answers.  Is my business ready to sell? Can I cope with the economic and industry changes on the horizons? Do I sell the company myself or hire an advisor to represent my company? Should I sell the company or leave it to my children?

Determining the best time to sell is the result of a combination of factors.  When you are ready to sell will the market be ready?  The two most important factors in going to market: 1) are you ready to sell and 2) is the market timing good.  You should know your business better than anyone, you know your customers, you know your employees and you know the competition.  You are the best person to know if you and your business are ready.  Market timing is a tricky question.  We are not advocates of trying to time the market.  We believe that determining when you are ready is more important than trying to time the market.  Then it is our job to maximize value through our proprietary sale process given the market conditions at that time.

Having said that, as we write this article we believe the M&A market is very positive.  Although interest rates are on the rise, capital is still relatively cheap.  Corporate coffers are flush with cash reserves and financial buyers (Private Equity Funds) are under pressure to put pledged capital to work.  As a result, buyers are able (and willing) to pay higher multiples in today’s market.  

We said earlier that you know best whether your business is ready to go to market.  The most important factor in how attractive your business will be in the market is your historical trend.  Buyers prefer consistent, steady growth over volatility and more than one tremendously good year.  I will go so far to say that buyers are suspicious of the sustainability of one tremendously good year.  If your trends are positive and your last 3 to 4 years show stable consistent growth, then we would agree, your timing is good.

Should I sell it myself or hire a professional investment banker?  Since we are in the business of selling business we would obviously say hire us to sell it.  Having said that, it is important to recognize how hard it is to run a Sale Process in a confidential manner and continue to run the business.  We add substantial value to the sale process by:
  • performing pre-marketing due-diligence to uncover positive business attributes to be highlighted and negative attributes that we might be able to fix before going to market;
  • preparing a comprehensive marketing document known as a Confidential Business Memorandum;
  • researching and assembling a target list of the most likely buyers for your business.  Identifying the most likely buyers is critical in order to maximize value;
  • controlling the flow of information so we can bring multiple buyers to the table at the same time and create a private auction to drive offers higher.
  • provide guidance on evaluating and selecting the best offer based on both price and structure, relying on our combined decades of experience completing business sale transactions.
  • free you up to continue to run your business and not be distracted by the sale process.  During the sale process is the time to make sure your business is operating at its peak.

These skills and several other factors will allow a professional advisor to get you the best price for your business regardless of market conditions.  We bring our entire team to bear on each and every transaction, including other professional such as the attorney, accountant and frequently an estate planning professional.  It is this team approach that assures that we will close the deal. This is a process that could take 9 to 15 months, or more.  During this time, you need to be running and growing your business.  The most valuable use of your time and skills during this process is to grow the business. 

Should I leave it to family?  That certainly is an option.  As I am sure you know, it depends on the capability and the passion the next generation has for running the business.  Many times, the next generation will be much better off with a liquidity event so they can pursue their own passions.  You should also consider a sale to a financial buyer to provide a liquidity event for the current generation and still allow the next generation to continue to run the company and retain some ownership.  We have completed several transactions like this and consider it a win/win for both generations.

Bill Neely, Senior Partner
Alan D. Austin, CFA

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