InSight

Exit and Growth Strategies for Middle Market Businesses

When Will I Sell?

By Peter Heydenrych | Aug 13, 2008

“I will sell if I receive the right offer, but I don’t want to market the business!”

Despite its obvious flaws, the above statement reflects the position taken by a surprising number of business owners. In fairness, marketing your business is time consuming and may jeopardize a hard-earned market position if “word gets out”, so the position is understandable. It just doesn’t make a lot of sense!

The “strategy” is flawed because it results in a reactive positioning, yielding all control to the buyer. It suffers from two serious deficiencies:

  • The seller does not select the buyer, the buyer selects the seller and the seller has no frame of reference to employ to determine if the buyer or the offer is really any good
  • The seller accepts that the business will be “ready for sale” the day the buyer happens to show up

There is a better way. Hire a professional firm to market the business (use of a professional firm will mitigate the time burden and professional knowledge and experience will benefit the process and the result) and plan the sale by assessing, with the professional firm’s help, how the business’ value can be increased, then executing that plan ahead of a sale. An experienced firm will know how to maintain confidentiality to the greatest extent, thereby mitigating against the risk of a premature information release to the market.

If the question is: “Can I make my business more valuable?”, then the answer is another question: “Can you decrease the risk that your business could fail after a sale and/or can you increase the potential for business growth?” You will be amazed how much value can be added to valuation by, for instance, addressing weaknesses in management, customer concentrations, marginal or unprofitable product lines, … and many, many more.

Example: A buyer assessing risk by using a discount rate of 33% might pay $30 million for a business earning $10 million. That same buyer, if persuaded that certain risks can or have been mitigated, might lower the discount rate to 30%, increasing his valuation to $33 million.

So, unless your business is already “perfect”, do put some thought and energy into “preparing for a sale” and don’t sell to the buyer who happens to come looking unless you have invited offers from a number of other buyers or have expert opinion on the fairness of the sole offer.


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