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Capital Ideas for Private Business

How Do I Know It’s Time To
Sell My Company?

A Ten Point Guide

By Robert Contaldo, Principal
Chicago Office, Corporate Finance Associates

Selling your business, which is perhaps your largest asset, can be a difficult decision. It has been part of you and part of your family. You have loved it — you have cursed it — you have nurtured it. Unlike us, it can live for generations — though the time will come when it must change hands.

Here are some points to consider when deciding whether or not it is time to sell your business:

The Thrill Is Gone

There simply 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.

Your Marketplace Is Changing

Businesses that do not change will ultimately fade away. Change requires new market direction, new equipment, new people, new technology, and new capital investment. Market changes can include more complexities involving government regulations, taxes, certification requirements, customer reporting requirements, foreign competition, 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.

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, and tired of meeting financing requirements and covenants. There comes a time when it makes sense to “take some chips off the table.”

A Change Would Be Good For The Family

Many have experienced the challenges of a family run business. As the succeeding generation grows into personal and business maturity, it may be time for a generational transfer of ownership. A recapitalization with a Private Equity Group as a financial partner can allow the founding shareholders to take the lion’s share of the business value in cash at closing, while the succeeding generation reinvests (through a small amount of the proceeds) for a large share of the company going forward. The company would also have access to growth capital. How great would it be to again have a family relationship that is not encroached upon by business?

  • Unprecedented Seller’s Market 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 over flowing levels of investment capital. With thousands of Private Equity Groups in the United States and a like number overseas, competition to buy companies is fierce. Multiple offers are the norm for even marginal or smaller companies. Premiums are being paid for companies as demand exceeds supply.
  • 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.
  • High net worth individuals can be worthy suitors. These individuals bring significant personal finances, outside private investment capital, experience, contacts, and expertise to the mix.

The convergence of these three types of buyers, along with a stable economy, low interest rates, and banks and other financial sources flush with ready capital, have created “The Perfect Storm” for sellers.

Unusual Financial Gain

Perhaps you have been approached by a bona fide buyer who is larger, cash heavy, willing to overpay, and inebriated with the desire to own your company. (We can dream can’t we?)

The Business Is Growing

Growing businesses reach a point where professional management at a higher level is demanded. The founder of the company is wise to recognize that the large business dynamic has thrust him into unfamiliar territory, requiring personnel changes, organizational upgrades and a bigger and much different way of thinking.

The Business Is Flat

If flat, declining or inconsistent financial performance characterizes your business over the past several years and you just cannot seem to “crack the code”, let someone else figure it out! A strategic buyer, or an individual buyer with a dynamic skill set, or a Private Equity Group with more money and contacts might hold the key.

Managing People Has Worn You Out

Do you long for the time when you need to only manage yourself? Are employee issues, government regulations, unions, medical insurance, profit sharing, and retirement plans driving you to the brink?

Personal Compelling Reasons

The reason for considering selling a business will generally transcend the enterprise value of the business (though not to minimize the value component). The fundamental checkpoint in considering the sale of a business is this: “Does this business stand in the way of doing something else with my life?” Many business owners wish to pursue a new direction in life that satisfies a greater personal or community need.

All business owners experience all or some of these points from time to time with varying intensity. When that trusted “gut” feeling indicates more than a passing notion of selling, it may be time to explore options. The reality is that more business owners have said, “I wish I had sold sooner” than “I sold too soon.”

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