by John Howe, Director
We regularly have conversations with owners about selling. As part of these discussions we take time to talk about the ‘why’. This almost always leads to one of ten core factors, each of which requires a different strategy.
Key influences include burnout, skillset, legacy, new opportunity, health, family issues, risk, recapitalization, and timing the market.
For some, a sale is the long-anticipated outcome after a lifetime of hard work, and often is accompanied by a desire for the best possible value in order to fund a retirement. For others, a sale is the culmination of a career that included careful preparation for life after business, and although value is important, other issues like legacy are more important.
The factors that motivate you will play a significant role in the path we take on your behalf. The desired outcome impacts how we market the business, which buyers we talk to, and how we negotiate terms. Ideally, the end result will align with your original motivations.
Let’s explore key motivations.
Retirement: You've had a good career and now you're ready to move on to more leisurely pursuits. You want more time and more freedom.
Burnout: You're stressed, worn down, and out of energy. Maybe you're having financial challenges, human resource issues, or ongoing disagreements with a business partner. Or maybe you're just tired. Whatever it is, you've had enough, and you want out.
Skillset: The business is growing faster than you can manage. Your company, and your employees, would benefit from someone with different skillsets, different connections, or a higher tolerance for risk.
Legacy: You're concerned about your company, your employees, and maybe even the larger community. You want to set your team up for success and make sure the business can succeed after you're gone.
New opportunity: You have an attractive new business opportunity available, or maybe even a lucrative job offer, and you want to redirect your energies.
Health: You're facing a personal health challenge. Or a key family member has health problems and needs your attention.
Family issues: Something in your family situation is prompting you to sell. Maybe it's a divorce, ongoing conflict about your working hours, or a loved one's crisis.
Risk: Your entire net worth is tied up in your business and you want to sell in order to diversify. You want to take some chips off the table by selling a minority or majority ownership stake.
Recapitalization: Your business would benefit from increased investment that you aren't capable of or don't feel comfortable providing. Recapitalizations are often closely tied to risk issues, as business owners nearing retirement may be hesitant to take on new debt (and the associated risk) in later years.
Timing the market: You know that market conditions are good, and you want to exit when you have the best chance of getting top dollar for your business. You know you don't want to hold on through another recession, so you're selling while the market is still strong. You've calculated what you need to live your ideal life and the business value has reached the point where it can support those goals.
As you consider why you're selling, consider your post-sale priorities. How soon do you want to be able to walk away? Would you consider remaining involved as a consultant, partner, or employee after a sale? Do you have pressing financial issues that require an immediate cash payout, versus potentially greater value recouped over time?
Get clear about why you're selling and what outcomes you want. This helps your M&A team target the right buyers and craft the right marketing messages.
You might think that the more flexible you are in your terms, the wider your potential buyer pool. But, and this is critical, you have to be honest with yourself and your advisor about what's truly going to be important at the closing table.
We've seen business owners make last minute shifts that can thwart deals. Time kills all deals and an "eleventh hour" change of heart can damage your business, your reputation, and your chance of selling to a different buyer in the future.
The buyer pool is large and active right now, so you're better off targeting buyers who will match your ideal sale scenario. The alternative, 'I'll consider anything' model has dangerous potential to bog down the sale process and waste valuable time.
Give us a call for an appointment so we can talk about what you want out of a sale. The process can help you understand what's possible in today's market.
BTS is a founding member of Cornerstone International, an alliance of professional M&A firms across the United States and internationally.
"The entire process went smoothly and professionally. The BTS team kept me fully informed at every step. They worked hard and were effective in bringing the deal home."
"Skip and I continue to be grateful for all you have done to make the sale of Pure Flow come to fruition."
"BTS’s level of expertise in the process and close attention to detail enabled us to successfully navigate the deal."
"These types of transactions are often long and complicated and I doubt it could have been successfully completed without your close ongoing involvement."
"The outside objective point of view that you have brought us has been invaluable as we prepare for the rapid growth."
"John then found the right buyer and coordinated a seamless transition—he doesn’t miss a single detail."
"John immediately identified our strengths and experiences and discussed a business that ultimately was more in line with our goals."
"The BTS team came in, evaluated everything in a professional and thankfully non-threatening manner."
Dealing with risks in a company sale
The passing last week of Harvard Business School professor Clayton Christensen – famous for his theory of business disruption - is a good time to consider business risk.
M&A Advisor Tip: Earnouts Can Break a Deadlock
Earnouts can be used to address a perception of risk faced by a buyer. They also are used to bridge a valuation gap between a buyer and a seller.
Changes by owners helped a sale
Owners considering selling can look at the experience of a N.H. company for ideas of what to do to increase their chances for a good transition.
Advisor Tip: Don’t lose your focus
Don't let those future plans distract you from what's going on today.
Growth Methods Used by Buyers
We often hear from founders who feel they have hit the ceiling with what they can do with their companies. Buyer groups in the market see this as an opportunity.
Manufacturing Company Sale Named Deal of the Year
In November, BTS and IDI were presented the M&A Source Deal of the Year Award at the organization’s 2019 conference in San Antonio.
A Better Option to the Unsolicited Offer
The call came out of the blue. It was a group interested in buying the business. They needed information. Your company was a perfect fit. Just send us some details and we will be in touch.
M&A Advisor Tip - How to Answer Questions
As you start the sale process, you may be holding offsite meetings and fielding confidential phone calls. Even a subtle shift in activity can cause savvy employees to wonder, ‘What's up?’.
What’s the Best Option for my Business?
Business owners have a wide variety of options open to them. A group of business owners joined us at our fall master class that focused on transition options and the experience.
M&A Advisor Tip - When You Can't Fix Customer Concentration Issues
As a general rule, no one customer should account for more than 20-25% of your company revenue.
Precision Machining Company
Initially, liquidation was a serious consideration. It would offer a quick exit but would hurt loyal employees and disrupt the customers who had come to rely on its quality production.
Green Product Company
Our client owners could dig in for the long haul…However, this would take five years or more. Owners simply lacked the horsepower to do it.
Water Purification Company and Young Buyers
Owners decided they wanted to retire. They also wanted to be fair to the staff who had been loyal to them. Could the company be sold, the staff retained and the facility remain in use?
Magnetics Company with High Profile Customers
(T)he manufacturer would need to focus on growing EBITDA to capture interest from major strategic buyers and achieve a higher multiple of earnings.