InSight

Exit and Growth Strategies for Middle Market Businesses

Waiting for the Next M&A Wave

By Kim Levin | Sep 06, 2008

A lot successful business owners are reeling from the combined effects of the expanding credit crunch and economic slowdown we are currently experiencing.  Many owners who had been thinking about selling their companies and creating long-term financial security and more free time for themselves now feel trapped and  unable to pursue their dream.

As a middle market investment banker and exit strategy advisor, I have recently observed an overriding temptation in business owners to simply ride out the current storm and wait for the next wave of M&A activity “the next valuation peak” and then return to their thoughts to selling their business.   The problem is, if they wait until the next wave comes, it will be too late to maximize their opportunity, and they risk missing it altogether (again!).

My advice to middle market business owners is this: don’t just wait for the next wave to arrive. Expect it and prepare for it.  If the market is soft for your business right now, it’s the perfect time to prepare for the time your market comes back.  Allocate a portion of your workweek (say 20%) on activities that will enhance both the market value and the marketability of your business in the future.

What am I talking about?  Here are six “Value Builders” that we recently identified for a client and which are common in privately held businesses.

  1. Management Succession: begin transfer of knowledge and responsibilities to key employee(s);
  2. Business Plan: create a written business plan focusing on growth opportunities and assuming no capital constraints;
  3. Website Enhancements: upgrade company’s website to ensure a very positive first impression to customers and potential buyers;
  4. Corporate Structure: discuss with company’s CPA alternative corporate structures that could yield favorable tax and/or marketability results;
  5. Financial Reporting Upgrade: invest in CPA- reviewed or audited financial statements;
  6. Corporate Contingency Plan: memorialize in writing a contingency plan for the business, clearly stating the owner’s intentions in the event of an unplanned event (death or disability).

Begin by determining your company’s unique Value Builders, creating a list of not less than 20.  Prioritize each Value Builder based upon (i) cost, (ii) ease of implementation, and (iii) impact.  Begin working the top priorities immediately.

The key is to work on something now, so when the next wave comes, it will be yours.


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