InSight

Exit and Growth Strategies for Middle Market Businesses

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Risk Assessment – Timing the Sale

By Dan Halvorson | Sep 27, 2019

In the first portion of my career I was trained as a grain/commodities trader.  It took years of experience to master the assessment of risk and the subsequent decision of timing – when to buy, sell, or do nothing while awaiting a better opportunity.  A multitude of factors were analyzed to enable these decisions – fundamentals such as supply & demand, macroeconomics, and current markets; technical analysis; as well as human perception/emotion as it related to the markets being traded.

A trader has three choices as to positions – long (owning at current market in anticipation of prices rising), even (neutral position holding dry powder for next market signal), or short (selling current market, betting on a price decline).  There is, of course, inherent risk in either a long or short position but in order to make money trading, one or the other must eventually be taken as being even over the long term has no profit potential.

Interestingly, in my experience, being short was often the most profitable position.  Why?  Because human nature isn’t comfortable selling something that it doesn’t own.  Human emotion favors the long position of ownership and anticipating/knowing/hoping that values go up.  Importantly, it also seeks to sell at the top of the market.  There is a fear of selling too soon and then seeing prices continue to rise.  This, unfortunately, often leads to selling too late – missing the top and trying to get out in a rapidly declining market. As I mentioned previously, it took years of trading experience to learn to minimize the effects of human nature/emotion on the timing of trading decisions; to cover a short before the bottom or sell out a long before the market topped. This was key to maximizing trading profitability. In the words of Bernard Baruch – “I made my money by selling too soon.”

The owners of a private company are obviously in an inherent long position through owning their company.  However, while they are nurturing the growth and profitability and enjoy running the company, I feel they are in effect – even.  From a transaction standpoint – they can do nothing. If they wish to grow through acquisition though, they are adding to their long position.

Once an exit is contemplated, whether it be 1, 2, or 5 years out, the owners’ position is definitively long; and the risk assessment and decision on timing of the sale/transaction become vitally important.  In other words, it’s time to have a trader mindset. Planning and preparing the company for maximum value is necessary, the same as upgrading and possibly staging a home for sale.  Assessing risk factors is also key – what is the impact on value/saleablility if the company loses a large customer?  Or incurs unforeseen product liability? – opioid pharmaceuticals and glyphosate (Roundup) are recent examples.  Or a high performing member of the management team leaves?  Can the recent growth curve be sustained?

It is difficult for owners to make the decision to sell when the company is doing very well.  Human nature is optimistic and there is a natural tendency to hold on for ‘just a few more years’ or conversely to ‘get back to where we were’ if there has been a recent dip in profitability.  Recognizing the potential impact of emotions on this decision is very important. A good M&A advisor will be invaluable in working with the owners to rationally assess risk and the timing of a sales transaction with the goal of selling their long into a strong, rising market – before the top.


M&A Quarterly News In The Agriculture Industry Sector

By Dan Halvorson | Sep 26, 2019

The report below gives a good overview of the third quarter M&A activity in the Agriculture Industry Sector. M&A activity for North American based target companies in the Agriculture sector for Q2 2019 included 19 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions in the sector was announced in May Indus Holdings, Inc. acquired Humble Flower Co for an undisclosed amount in cash. The transaction enhances Indus Holdings’ portfolio of service offerings. Founded in 2016 Humble Flower engages in cultivating, extracting, producing and distributing cannabis products.

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M&A Quarterly News In The Agriculture Industry Sector

By Dan Halvorson | Jun 26, 2019

The report below gives a good overview of the second quarter M&A activity in the Agriculture Industry Sector. M&A activity for North American based target companies in the Agriculture sector for Q1 2019 included 25 closed deals, according to data published by industry data tracker FactSet.

One of the notable middle market transactions was announced in February when Nutrien Ltd acquired Van Horn, Inc. for an undisclosed amount. The acquisition enhances Nutrien’s retail business. Following the transaction, Van Horn joins Nutrien AG Solutions, a subsidiary of Nutrien Ltd. Van Horn is located in Illinois and produces and retails hybrid agricultural products.

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In-between

By Dan Halvorson | Oct 17, 2017
Selling My Business

While a company owner, and before joining CFA, I thought that with regards to an exit strategy it was simply ‘all-or-none’.  That I either retained ownership of my company, and perhaps position it for the next generation, or sell it and walk away.  Unless they’ve taken the time to research this (and surprisingly few have), most owners of lower-middle market companies feel the same way.  This leads to a natural hesitation and, at times, delay in planning their exit until.. Read more »