Take Timing Under Advisement

By Scott Bushkie

Timing is everything in the M&A market, and in many cases things you can’t control will impact your value more than those you can. Here’s what I mean:

I was just talking with a client, conducting an exit interview after selling one of his companies. He was pleased with the results and was thinking about selling his other business. But his ideal timing, he said, was when his son graduated from high school in about two and a half years.

The problem, I told him, is that the current market climate isn’t expected to last that long. The market is cyclical and heavily influenced by global economic and political events (factors you can’t control). In fact, I just heard a well-respected economist predict that market conditions will last another two years, two and a half at best.

That means just as he’s ready to put his business on the market, multiples could drop a full point or more. Even if he continues to grow the business (factors he can control), the value might be lower than what he could get today. And that means he might have to wait until his son graduates from college to sell instead if he wants to truly maximize his value for all the years of hard work.

So he’s reconsidering his options. He may split the difference and run his business for another year before putting it on the market. Besides, I expect this recent sale may have given him a good, serious look at retirement.

This guy is a serial entrepreneur, and investors recognize his talent for creating high-potential businesses. He’s sharp, and he has a great partner. Together, they understand business and know how to put together high-performing teams.

This most recent deal was an operation with 6 locations through the southern Midwest, and it marked the first time these sellers had used an outside advisor to sell a business. In previous deals, they’d been contacted by a strategic buyer and negotiated directly.

The main reason they reached out to us at all was because they anticipated some hurdles getting to the closing table. They didn’t really want to pay our fees, but they thought they needed some extra help.

Imagine their surprise, then, when we closed the deal for approximately twice their initial goal. Instead of negotiating with one buyer directly, we brought 11 different buyer groups to the table. That created a competitive bidding environment that increased the ultimate sale price while still maintaining confidentiality.

Although these sellers have been extremely successful and gotten good values for their companies in the past, I have to believe they’ve left money on the table over the years. Working with just one buyer removes a lot of your leverage in a deal, and no one is going to bid up their own purchase price.

If you’re a business owner, you will probably be solicited to sell your business in the next year or two while the market is still strong. You’ll get letters, phone calls, emails, or even faxes from buyers and/or advisors indicating they already have a buyer for your business. Many of those will be fishing expeditions, but some will be real.

I urge you, before you respond, to gather your team. Ask your current trusted advisors to recommend an accountant and an attorney who are specialists in M&A along with an M&A advisor who can champion the process from start to finish. An M&A advisor can also give you accurate information in an Estimate of Value and other insight into market conditions so you can make a well informed decision if going to market makes sense for you.

If you do decide to sell, consider a confidential open market approach, rather than entering into one-on-one negotiations. It’s certainly possible to get a fair price working with just one buyer, but you’ll never know if you got top dollar or the best structure possible.

Globally, we’ve just come off a record year for M&A, exceeding the last record set in 2007. This coming year has the potential to be just as active. Interest rates are slowly starting to tick up, but we shouldn’t feel the effect of that just yet. If you’re hoping to sell in next few years, evaluate your goals, talk to your advisors, and time the market accordingly.

By Scott Bushkie