Is Now the Right Time to Sell My Business?

by Andrew Sannes

Selling your business, which is possibly your largest asset, can be an arduous decision. It has been part of you and your family; it’s really like a family member. You have loved it, hung your head in frustration, glowed with excitement over its accomplishments, and nurtured it. You have been its life source, pouring your heart and soul into it and watching it grow up through the years. However, the time will come when it should change hands and set free to flourish under new ownership.

When the progression of the business and your personal circumstances begin to signal the need for transition, it should be addressed to realize financial security, the ultimate motivation for which it was conceived.

After over 150 years of combined experience advising on the selling and buying of companies, we at Taureau Group have found that it is exceedingly difficult to convince a business owner to sell until the business and personal time are synchronized with one another; however, once those reasons align, only unintended consequences will come from delaying a sale.

Consider these nine points when deciding whether it is time to sell your business:

1) Personal Compelling Reason
The reason for considering selling a business will generally transcend the enterprise value of the business, but likely not minimize the value component. The fundamental matter in considering the sale of a business is to ask yourself, “Is the business standing in the way of me doing something else I want more in life?”

Optimistically, the decision to sell is voluntary and not a result of circumstances that require a sale. Even so, an exit strategy must be considered as part of an estate plan since life is uncertain and unpredictable. A team of experts comprised of a licensed investment banking professional, an accountant, and an attorney are paramount.

All business owners experience all or some of the points discussed in this article from time to time with varying degree. When your “gut feeling” suggests more than a passing mood for selling, it may be time to investigate your options. In practice, more business owners have said, “I wish I had sold sooner” than “I sold too early.”

2) For the Good of the Family or Mental Wellness
Numerous individuals have lived and faced the thrills and challenges of a family-run or owned business. As the ensuing generation grows personally and in business responsibility, it may be time for a generational transfer of ownership.  A recapitalization with a private equity group as a financial partner can allow the founding owners to take much of the business value in cash at closing, while the succeeding generation re-invests (through a limited portion of the sale proceeds) for a meaningful share of the company going forward by leveraging an appropriate debt structure. The succeeding generational owners and the company would also have access to growth capital and a thought partner, while removing themselves from personal risk. This step generally requires a three to five-year commitment, so thoughtful advance planning is essential. How great would it be to relieve yourself of financial and business risks, secure your financial future as well as the following generation’s, free your family/personal relationships from business pressures and relish family or personal time that might have otherwise been missed due to business interruptions?

3) Seller’s Market
Maybe you have been approached by a bona fide buyer who is larger, has significant cash reserves, is willing to pay a premium, and is exceedingly eager to own your company. Your chances are better than winning the lottery, but it is atypical and should not be expected, as that buyer is likely looking for a bargain purchase price. The best way to determine if the offer and buyer are right… hire an investment banker.  An investment bank has the resources and experience to guide you through the process of selling your business, from aptly valuing your company, preparing and positioning the business for sale, identifying numerous more suitable and vetted buyers (increasing likelihood of a successful sale and creating a competitive process), keeping your best interests as a top priority while allowing you to not be distracted from your daily business obligations, obtaining the highest value and best buyer for your company, and ensuring the legacy of your business remains intact via a transaction that achieves your objectives along with the generations that follow and the employees that remain.

Through a sell-side process executed by an M&A advisor, one of the following three principal buyer groups will be found to be the right buyer/partner: Private Equity Group, Strategic Acquirer and Family Office.

Private Equity Groups are leading the charge with record levels of available investment capital (“dry powder”) and have become much more socially attractive over the past decade. With approximately 2,500 Private Equity Groups in the United States and a comparable number outside of the U.S., holding an estimated $1.7 trillion of equity capital to invest, competition to buy companies remains strong. The reality is that multiple offers can be received even for certain businesses that buyers consider secondary industries or smaller companies. Premiums are being paid for quality companies as demand exceeds supply.

Strategic Acquirers, not unlike Private Equity Groups, see growth through acquisitions as the preferred way to quickly gain market share, extend their product portfolios and services, augment resources, enhance management, leverage partner networks towards expanding their market outreach and remain competitive.

When considering who pays the higher price, Strategic Acquirers have historically been either the best or the worst buyers (more often the latter) until recent years. Oftentimes, their chief competition has been acquired by a Private Equity Group, which by mandate effectuates meaningful growth. As the industry and market take notice, it puts pressure on the privately owned companies to follow suit. Simply stated, each of these groups are trying to achieve growth through acquisitions to upgrade themselves in the value chain and build/consolidate their presence in the broader market.

Family Offices can be attractive suitors. These dynamic and cultivated groups bring experience, a network of experts, industry expertise, significant personal finances and outside private capital, and commonly a long-term investment strategy.

COVID Update – The value of businesses that have maintained or performed well during the COVID-19 pandemic may be capable of receiving valuations higher than the (already high) pre-COVID levels. While Private Equity Groups may have suffered financial strain through their portfolio companies, the mandate to invest remains a principal objective; however, the field of quality, stable performing companies has diminished, at least for the meantime. Likewise, Family Offices have experienced the same financial strain in their investments and continue to invest, but perhaps to a lesser extent. Regarding Strategic Acquirers’ acquisitions, if their industry is performing well, then it’s stay the course and buy. If the Strategic Acquirer has been negatively affected by COVID, acquisitions are largely put on hold for the time being.

4) Partnership Headaches
Partners often find themselves at extreme odds or no longer on the same page – as time passes. Beliefs and values may change, resentment may ensue from imbalance in work ethic and workload or you no longer share the same vision. Think: The Beatles; The Eagles; Eduardo Saverin/Mark Zuckerberg; Jamie Dimon/Sandy Weill; some marriages; and regrettably, many businesses. Intriguingly, we have found that most partnership problems are intensified by success after the partners had been unified growing the business and meeting their shared goals. Too frequently, financial success breeds an unequal devotion toward reaching the next level as one continues to display drive and the other becomes content with the existing circumstances.

5) Shifting Marketplace
Businesses that are rigid, invariable or that do not evolve will ultimately fade from existence. Change often requires more capital and time investment, new technology, modified strategy, more equipment, enhanced management, increased staff or expanded facilities. Market changes can include more complexities involving new or revised regulations, taxes, financing, certification requirements, reporting requirements, new competition that threatens margins, customers seeking fewer suppliers and lower costs, or COVID-19. Frequently, the direction is obvious, but the psyche and feelings are not willing to accept change.

6) Risk Allocation
With all the demands of a shifting marketplace, business owners do not have the luxury of becoming complacent when it comes to ongoing investment in the company. When you reach the point of irrational investments in the company or tend to focus on the debt rather than the feasible gain, the signs point to it being time to sell.  Invariably, many business owners reach a point where they are tired of carrying the weight on their shoulders alone, weary of personal guarantees, sick of worrying about tripping financial covenants and exhausted guarding assets from legal peril. Eventually, it just makes sense to take some chips off the table and bear less risk.

7) Prolonged Flat Sales
If the financial performance of your enterprise has been declining, is flat, or has been regularly financially inconsistent over the past several years and you cannot steer it out of its rut, do not fear handing over the wheel. One of the buyer groups discussed above, possessing a dynamic skill set or with more money and significant contacts or resources, might be the solution to the problem. Often, business owners fail to realize that by staying in business under these circumstances, they miss on personal financial gain elsewhere and inadvertently lose personal wealth.

8) The Business has Outgrown You
It would appear at odds with traditional thought that a business owner should consider selling when growth is accelerating, but growth can bring a business to its knees quickly. Cash flow becomes the beast that cannot be tamed. Even in instances where a business owner has command of growth, businesses get to a stage where professional management at a higher level is required. One is wise to recognize his/her limitations and that the larger business forces have thrust him/her into an uncomfortable setting, requiring organizational improvements, deeper analytical and logical reasoning, and personnel changes requiring more time, greater determination, and commitment.

9) The Excitement and Passion Are Gone
Are HR issues, insurance matters, bank financing, regulations, unions, profit sharing, and retirement plans pushing you past the threshold?  We all go through life’s ups and downs. Young business owners focus on planning for the future, raising a family, and gaining financial security for their golden years.  With that goal, late nights, tightening the purse strings, missed birthdays and anniversaries, and making numerous other sacrifices are necessary and expected as part of a growing and running a business.  However, there comes a time when a business owner loses the desire to take the business any further.  The struggles and triumphs that at one time were invigorating have now lost their significance and have become somewhat dull and boring.  The focus shifts to more time off, time with toes in the sand, grandkids or more hobbies.  Many business owners want to seek a new path in life that satisfies a greater personal need.

Please contact any of our experienced M&A professionals here to discuss whether the time is right to sell your company.