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

3 Reasons an M&A Advisor is Worth Their Fee

I have to believe that every business owner that is considering the sale of their business goes through the exercise of deciding whether to use an M&A Advisor or trying to sell their business themselves.  I understand the apprehension that comes with hiring an M&A Advisor.  On the front-end, the Advisor's fee looks daunting; so the real question is whether their services added value.  I am in the business so naturally I am convinced we add value in the form of higher valuations and more efficient transactions.  But you don’t have to take my word for it.  Go to this Axial Network article that presents a recent survey of CEOs who had recently sold their business and reported that 100% of the respondents said their M&A Advisor added value. 

3 Reasons an M&A Advisor is Worth the Cost

The article goes on to discuss three specific ways an M&A Advisor adds value and also highlights the benefits of early preparation when considering a sale. This article is a good start on the value provided by an experienced M&A Advisor but it is certainly not exhaustive.  We will explore more of the areas where we add value in the sale process in future articles.

Alan D. Austin, CFA

2017 is a Seller's Market; If You Want to Sell, Now is the Time

We are frequently asked, "when is the best time to sell my business?"  There are many factors that go in to answering that question but they generally fall in to two broad categories:  Internal Factors and External Factors. 

The internal factors are factors that relate to the specific circumstances of the business and the business owner(s).  Some of these factors include where the business is in its lifecycle, the level of profitability, growth trends, the age and health status of the owner(s) and their need or desire for liquidity and the owner’s desire to reduced business risk.  These are topics we will discuss in a late article.

Today we want to discuss the external factors that are in play today that make 2017 possibly one of the best times to sell a business in last decade.  If you have been thinking about selling, we believe now is the time to pull the trigger.

Why are we so optimistic about the market opportunities today?  It does not happen very often but it seems that the stars are aligned to maximize value for the selling owner.  This is truly a “Seller’s Market.”  Here are some of the factors that lead us to this conclusion:

Business Expansion – We are in the 9^th year of the current business expansion.  I would be the first to acknowledge that it has not been the most robust expansion but that slow, steady growth is one of the reasons it has lasted so long.  Most businesses are performing as well now as they have at any point in the last decade.  In addition, most businesses have had a steady continued growth in revenues and profitability; two extremely important factors that increase value in the eyes of the buyers.

Economic Cycle – Synonymous with the business expansion described above are the economic cycles that are inevitable in any economy.  We are clearly still in a growth cycle but it will eventually turn the other direction, it is just a matter of when.  It is always better to sell a business during a growth cycle because at that point in the cycle the outlook for the buyer is better and they perceive less risk in the acquisition.  The perception of less risk for the buyer translates in to a higher price for the seller.  We don’t know how much longer this expansion will last so sooner is better if you are thinking about selling in the next several years.  If your industry is particularly susceptible to economic cycles, like home building or the related lumber and building material distribution business, then this is even more of a concern for your business.

Cost of Capital – Although we are beginning to see interest rates increase slightly they are still at historic lows.  Prime rate is currently 4.25% and 3-month LIBOR is only 1.30% both of which represent relatively cheap funds for business purchasers.  When buyers can access inexpensive capital like this to complete business acquisitions their overall cost of capital is lower.  As you know, a lower cost of capital equals higher value for the seller.  As interest rates continue to rise and the buyer’s cost of capital goes up the same business generating the same level of cash flow will become less valuable to these same buyers.  If the economic down turn is just around the corner, your business may be worth more now than it will be for many years to come.  

Access to Capital – Closely related to the lower cost of capital is the abundance of capital available for acquisitions.  Generally speaking, strategic buyers have benefitted from this long and profitable economic expansion resulting in reduced debt, stronger balance sheets and more cash reserves available for acquisitions.  Similarly, private equity and sub-debt funds continue to have successful fundraising experience and consequently have an abundance of capital available, specifically for business acquisitions.  Thirdly, the bank lending market is still hungry for loans and are anxious to lend for business acquisitions.  Consequently, buyers have access to the equity and low-cost debt-capital to fund desirable business acquisitions.

In summary, the access to abundant and low-cost capital and a continued business expansion makes 2017 a ‘Seller’s Market.”  In addition, avoiding the inevitable cyclical downturn that is certainly in our future makes 2017 the time to go to market.

When selling a business, engaging the right advisors is critical.  Here are just a few reasons why Mt. Vista Capital is the right M&A advisor for your business.

• A team of senior transaction advisors that handle the transaction from inception to close; no hand-of to junior associates.
• A broad cross section of industry experience including manufacturing, distribution, business services, technology, etc.
• A dedicated focus on serving the needs of owners and shareholders of privately owned middle-market companies, small-cap public companies and orphaned divisions of public companies. 
• A proprietary transaction process designed to bring multiple buyers and maximize value.
• The ability to provide in-house business valuations.

We are pleased to offer a complimentary business valuation analysis to any business owner that is considering a sale transaction in the next year or two.  Please feel free to contact us to discuss any of your specific valuation or transaction questions.

Alan D. Austin, CFA