Exit and Growth Strategies for Middle Market Businesses

5 Reasons the Timing is Right to Sell Your Business Now | Part 4

By Brian Ballo | Apr 14, 2014

This blog post is the fourth in a series of 5.

Business owners inquiring whether the timing is optimal for obtaining the highest price for their business, often start by inquiring: “What are business valuations in the market today?” EBITDA multiples provide a quick thumbnail answer to this question.

However, just focusing on today’s industry numbers, does not enable a business owner to evaluate the risk of whether the business will be worth more or less in the future, as compared to selling the business now.

Savvy business owners, who are attuned  to macro factors impacting business valuations, such as the aging population, financing terms and tax reasons, understand  that several conditions  exist today, which support selling your business in 2014.   In addition to  these  macro factors, the  question  of timing comes down to whether selling the business is strategically beneficial for the business, given its life-stage, as well as compelling personal reasons why it makes good sense for the business owner to sell.

4.  Your Company’s Life-Cycle Timing Indicates a Strategic Reason to Sell

Each company has life-cycles, and the challenges of passing to the next developmental stage can often be strategically improved through a sale or merger. Companies in the initial development and emerging growth stages, require debt and minority equity capital, but, generally, are not good acquisition candidates.  On the other hand, companies in later stage growth, that have reached a stable, mature level, or that are declining, are attractive to both strategic corporate acquirers and Private Equity Groups (PEG).

Companies which are earning profits, and that have promising projections for increasing revenues, need financial resources to  sustain growth. The right Buyer can provide needed working capital, management expertise, competitive strength, and expansion into new markets. For mature companies, the right Buyer can provide more effective distribution channels, improved operating margins, as well as fresh management, to return the company to growth.

Companies in the declining stage of their life-cycle, typically resulting from owner burn-out, can also be attractive acquisition targets.  Corporate and PEG Buyers have the money and other resources needed in order to achieve a turn-around.  In addition, the right Buyer provides a renewed sense of direction and focuses  key personnel on immediate challenges, while working to solve the reasons for decline, defend the company’s market share, and improve competitive performance.

Unlike the three  macro factors discussed above, where your company is in its life-cycle is specific to your company. Usually the best time to obtain the highest price occurs when sales and  earnings are good  and trending  upward, with a history of good performance.  This gives buyers confidence in projected future earnings.

Posted by Brian Ballo.

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