This might just be the perfect M&A irony!
But as a business owner and potential vendor, you will want every acquirer to believe that businesses are bought, not sold. Yet, as someone contemplating the sale of their business, business owners should behave as if businesses are sold, not bought, if they are to maximise the sale of their business and achieve their goals on exit.
Why Important?
In a well-orchestrated sale process, the WHO and the HOW of your exit are carefully calibrated to maximise the HOW MUCH.
Leaving these attributes of your sale to chance and expecting a successful exit is like waiting by the phone for your ‘crush’ to call, when your ‘crush’ is not aware they are your ‘crush’!
Like chance, this can happen, but not very often and even when it does, it very rarely works in the vendor’s favour.
In this article, we explain why businesses are sold, not bought, by examining the impact of the WHO and the HOW of a well-planned sale process and why they are critically important to maximising the HOW MUCH in the sale of your business.
Deciding To Sell?
“Before anything else, preparation is the key to success.” – Alexander Graham Bell
The decision to sell has both emotional and physical elements and both need to be addressed by owners before a business is put to market or an offer can be objectively evaluated, however it is received.
Letting go of the reins of the business is no small undertaking for owners. Comfort with this decision lies in having definitive plans for life post sale. Research highlights a certain loss of social status for some owners that can accompany the relinquishment of control of a business, so having a strong ‘sense of self’ and purpose in life post sale should not be underestimated.
Not surprisingly, once the decision to sell has been resolved, the work required to prepare both the business for sale and the pending changes to the lives of owners and their dependents and beneficiaries is more productive.
Being exit ready can be more complicated for some businesses than others, but what is common amongst businesses and their owners looking to exit are: the obtainment of business objectives; owner alignment on business price aspirations; completing general business housekeeping matters; as well as satisfying financial and estate planning needs.
When To Sell?
Receiving unsolicited interest from would-be-buyers of your business can be flattering. It might also make you feel like your business is a business to be bought, not sold!
However, don’t get too excited, because the outreach from some buyers might not represent the interest you were hoping for. Some are conducting industry due diligence for a portfolio company, while others, might well be interested, but seek to deal exclusively in a non-competitive one-on-one buyer-seller scenario. And as discussed above, if as owners you have not made the decision to sell you are not ready to sell nor in a position to maximise your exit.
When buyers come knocking, know that listed companies have a growth imperative. For these businesses to grow at the rate the market expects, they must acquire other businesses, like yours! For a lot of listed companies, growth by acquisition is built into their share price. It is also built into the KPIs and performance remuneration targets of CEOs and other key corporate decision makers. Even more proactive than many strategic buyers in initiating unsolicited buyer interest, are Private Equity (PE) whose life’s blood is the acquisition of a steady stream of quality privately owned businesses.
The time of when to sell is unquestionable when the owners and the business are ready.
Selling on the owners’ terms should encompass selling preferably when revenues and earnings are at or approaching their best. Selling when you are ‘winning’ might sound counter-intuitive, but growth businesses sell for significantly larger multiples than non-growth businesses, and the higher the growth, generally the higher the multiple and higher the price.
As regards ‘timing the market’ to maximise value, this can be a bit of a red-herring. All too often we have witnessed owners deferring an exit because of 9/11 attacks, the GFC, or COVID-19. Unfortunately, the next crisis might just be round the corner and putting off what can be done today has never being a good strategy.
The important thing, as an owner considering an exit, is to be clear about your objectives and work to optimise that outcome – no matter ‘when’ in the life cycle you choose to sell.
Keep in mind, that regardless of the broader economic environment and industry dynamics, there are always other business leaders out there thinking long and hard about how they can grow their business. They lie awake at night trying to solve the challenges of increasing revenues, improving the bottom line, product/service diversification, geographical expansion, acquiring new capabilities etc. And ultimately, it’s this – solving someone else’s growth challenge – that will drive the pricing of your business.
If you’re considering the sale of your business and seeking a pathway to maximize your exit success, Active Directions is here to guide you. Let’s have a confidential conversation to explore how our tailored M&A advisory services can achieve your objectives.