After selling companies for over thirty years, I have found that it is near impossible to convince a business owner to sell until the business and personal reasons align. But once they do, no good ever comes from delaying a sale. Over the past few weeks, my blog posts have focused on signs it may be time to sell your business… from boredom and a changing market place to risk intolerance. Another good reason to consider selling is a plethora of motivated buyers.

Sign #5 – It’s a Seller’s Market – Always

The three principal buyer groups are Private Equity Groups, strategic acquirers, and high net worth individuals.

Private Equity Groups have become the new conglomerates with overflowing levels of investment capital. With 2,500+ Private Equity Groups in the United States and a like number overseas, competition to buy companies remains robust among financial buyers. Multiple offers can be a reality for even some marginal or smaller companies. Premiums are being paid for companies as demand exceeds supply for those performing well in these tough economic times.

Strategic acquirers see growth through acquisitions as the preferred way to gain market share quickly, add product lines, augment human resources, enhance management, and stay competitive.

Strategic acquirers flush with cash have led the charge to buy companies particularly as banking has tightened for financial buyers.

High net worth individuals and family funds can be worthy suitors. These individuals bring significant personal finances, outside private investment capital, experience, contacts, expertise, and many times a unique investment strategy to the mix.

Perhaps you have been approached by one of these bona fide buyers who is large, cash heavy, willing to pay generously… and inebriated with the desire to own your company. (We can dream can’t we?). This may be a sign it’s time to sell.

Posted by Bob Contaldo.

One of my colleagues, David DuWaldt, wrote a great piece about how taxes and M&A deal structure work hand in hand.  David does a great job explaining why the tax interests of the buyer and those of the seller are often at odds with one another and how a resourcefully structured transaction can bridge the gap between the two.  I suggest you read David’s full article here.

Because the laws are constantly changing, it’s important to work with a trusted team of advisors including your accountant, lawyer, financial planner and investment banker to design the M&A deal structure that provides the best liquidity outcome for you.  Remember…it’s what you keep that counts.

Posted by Roy Graham.

Most private company owners are used to doing things for themselves.  Many founded the companies that they run, and they took care of sales, operations, and financing alone before their company grew large enough to have an organization to manage those functional areas.  Entrepreneurs are successful because they are versatile and are unafraid to take on the challenge of doing what needs to be done at each stage in the life cycle of their company.  So it’s natural for company owners to want to take on the task of selling their company as one more personal challenge that they can do as well as an outside expert.

As I have mentioned in my last few blog posts, some company owners chose to handle the process of selling their company themselves.  Some of these owners successfully sell their company for a high valuation.  Many of them successfully sell their company, but for a lower price or on weaker terms than they may have deserved.  And too many of them aren’t successful at selling at all.

Company owners hire investment bankers to manage the process and represent their interests in the sale of their companies.  There are a number of reasons why smart owners pay investment banking fees for these services.

Reason #3

PERSONAL DYNAMICS.  The initial contact with a potential buyer sets the stage for subsequent negotiations.  An owner who contacts buyers directly may seem weak or desperate to sell.  Alternatively, too casual an approach can lead buyers to think that the seller is not serious about selling the company.

Having an experienced dealmaker make the initial contact sends a message of sophistication and seriousness on the part of the seller.  Furthermore, a third-party can maintain the confidentiality of the seller until an interest has been established and initial buyer qualifications are validated.  This protects the seller’s confidentiality in the marketplace.

Posted by John Hammett.

Your business – it has been part of you and part of your family. It has been good to you like an old friend. You have loved it – you have cursed it – you have nurtured it, you have seen it from birth through the teen years and into maturity. Unlike us, it can live for generations – though the time will come when it must change hands and the decision to sell your business can be a difficult one to make.

In this series of blog posts I’ll be discussing the 10 signs that it might be time to sell your business.   The first sign is when the enthusiasm for the business has diminished.  A changing marketplace can also be a sign it’s time to exit.

Sign #3 – Risk Becomes a Four Letter Word

With all that needs to be done in a changing marketplace, business owners cannot afford to be squeamish when it comes to ongoing investment in the company. When one reaches the point of not making logical investments in the company or tends to count the debt rather than the probable benefit, it might be time to sell. Most business owners reach a point where they are tired of “betting the farm”, tired of personal guarantees, tired of meeting financing requirements and covenants, and worn out over protecting assets from legal liability. There comes a time when it makes sense to “take some chips off the table” and build financial firewalls.

Posted by Bob Contaldo.

Your business – it has been part of you and part of your family. It has been good to you like an old friend. You have loved it – you have cursed it – you have nurtured it, you have seen it from birth through the teen years and into maturity. Unlike us, it can live for generations – though the time will come when it must change hands  and the decision to sell your business can be a difficult one to make.

When the cycle of business and our personal circumstances begin to herald the transition, it should be addressed in order to realize the financial security for which it was created.

In my next few blog posts I’ll be discussing the 10 signs that it might be time to sell your business.   The first sign, which I wrote about last post, is when the enthusiasm for the business has diminished.

Sign #2 – Your Marketplace Is Changing

Businesses that do not change will ultimately fade away. Change requires new market direction, more equipment, more people, new technology, expanded facilities, and other capital investment. Market changes can include more complexities involving government regulations, taxes, banking, certification requirements, customer reporting requirements, foreign competition that threatens margins and customers seeking fewer suppliers and lower costs. Many times the direction is clear, but the mind, body, and emotions are not willing to embrace change.

Download The Ten Biggest Mistakes Sellers Make.

Posted by Bob Contaldo.

Most private company owners are used to doing things for themselves.  Many founded the companies that they run, and they took care of sales, operations, and financing alone before their company grew large enough to have an organization to manage those functional areas.  Entrepreneurs are successful because they are versatile and are unafraid to take on the challenge of doing what needs to be done at each stage in the life cycle of their company.  So it’s natural for company owners to want to take on the task of selling their company as one more personal challenge that they can do as well as an outside expert.

As a result, some company owners choose to handle the process of selling their company themselves.  Some of these owners successfully sell their company for a high valuation.  Many of them successfully sell their company, but for a lower price or on weaker terms than they may have deserved.  And too many of them aren’t successful at selling at all.

Company owners hire investment bankers to manage the process and represent their interests in the sale of their companies.  There are a number of reasons why smart owners pay investment banking fees for these services.

Reason #1 – Minding the Business

It typically takes between 6 months to a year to complete the sale of a private company.   A successful sale depends on the company continuing to perform at or above its projected earnings throughout that process.  Falling behind the projection will expose the owner losing the deal in the process, or having to reduce the price to keep the deal going.

An owner who tries to manage the investment banking process while continuing to be responsible for the company’s performance can get trapped by conflicting demands on time.  It is essential for the owner to stay focused on the company’s current earnings record.  Deals take large blocks of time in certain phases.  It is better for the outside dealmaker to carry these tasks instead of taking the owner away from his primary duties.  Owners who try to manage this part of the process can risk both the company’s current operating results and the deal itself.

An outside M&A advisor will stay focused on the deal while the owner stays focused on running the company’s day-to-day operations.

Posted by John Hammett.

When the cycle of business and our personal circumstances begin to herald the transition, it should be addressed in order to realize the financial security for which it was created.

After 30 years of selling companies, I have found that it is near impossible to convince a business owner to sell until the business and personal reasons align. But once they do, no good ever comes from delaying a sale.

So – in the next few blog posts I will cover ten signs that it might be time to sell your business:

Sign #1 – The Thrill Is Gone

We all go through seasons in life. Young business owners focus on raising a family, planning for the future and striving for a financially secure retirement.  To that end, fighting the battles and making the sacrifices are necessary and expected as part of growing a business.  However, there comes a time when a business owner does not care to take the business any further. The battles and victories that at one time were energizing have now lost their importance, and have become somewhat boring and wearisome. The focus shifts to more time off, warmer weather, grandkids, or more leisure time activities.  Many business owners want to pursue a new direction in life that satisfies a greater personal or community need.

Posted by Bob Contaldo.

Download the Middle Market Pulse.

Posted by Greg McKinley.

My first three blog posts in this series discussed Deal Killer #1, No Management Depth and Deal Killer # 2, Customer Concentration and Deal Killer #3, Inconsistent Financials.  This post will focus on another problem some sellers may face…environmental concerns.

Deal Killer #4 – The Environmental Factor

ENVIRONMENTAL ISSUES.  Any environmental issue can be a Deal Killer.  Environmental issues involve government, uncertainty, and legal costs. Environmental laws often put the cost of clean-up to the current owners and operators, even if the pollution was caused by a predecessor company at that location.

If the company uses hazardous chemicals, buyers will be extremely cautious about proceeding with a deal.  Real estate will always be subject to due diligence by buyers and a problem found late in the process will very likely kill a deal.

Buyers are very reluctant to buy real estate as part of a deal, nor do they want to acquire a company that has a “tail” of exposure from previous operations.  Even if the company is only a lessor of the real estate, environmental liability goes back to the company that operated on the site and buyers will want to ensure that they don’t buy that historical exposure when they buy the company

ANTIDOTES.    The key antidotes are knowledge and disclosure.  Sellers should understand the use and management of hazardous materials in their operations so that these can be documented and explained to buyers.

It is best to know of environmental issues ahead of the deal negotiation.   Sellers should do their own research in advance to find out if there is any pollution on their site, whether caused by them or a predecessor.  If any issues are found, these should be described and documented up front.  Some buyers will be willing to work through some of these issues if they are known in the beginning.  Late discovery of environmental issues is nearly always a deal killer.

 Posted by John Hammett.

My first two blog posts in this series discussed Deal Killer #1  No Management Depth and Deal Killer #2 Customer Concentration.  This post will focus on a current problem for many companies…financial inconsistency.

Deal Killer #3 – Financial Inconsistency

Inconsistent Financial History.  Buyers look back at four or five years of historical financial performance when they evaluate a company.  If that history shows big swings up or down in sales and earnings (and losses), it makes them uncomfortable that they can predict and control the future sales and earnings.  Historical volatility and inconsistent financial history are a Deal Killer for many buyers.

Antidotes.  There a number of ways to mitigate this issue.

The time frame of the history can be adjusted to show today’s results in the best context.  If the last three years are nicely consistent, show only those and ignore earlier years that may be volatile.  Or, if the volatility is in the last two or three years, including a five or six year history may give a more stable picture.

If the company’s industry has had ups and downs, tracking the company’s performance against industry trends may show that company is less susceptible to volatility than its peers.

It may be worthwhile to hire an accounting consultant or investment banker to review the company’s history to identify specific factors that can be restated to make history look more even.  For example, one-time legal bills, bad debts, and discontinued product lines can be restated out of the historical financial results to show a more consistent trend.  This kind of restatement is a common and accepted practice.

 Posted by John Hammett.