Most business owners never slow down enough to assess when the best time might be to sell their business. Many run as fast as they can, keeping up with day-to-day challenges and fire drills they face in staying competitive. They occasionally think about selling but often “feel” there is much more to accomplish without looking at the whole picture. The challenge for a business is determining that “best time” to sell, which is often when they are at their busiest and the business is on an upward performance trend; this is when owners should consider a selling process.

 

Selling under flat or slightly declining revenue figures is not when owners achieve optimal value for their business. It’s when the business is trending up, and a definable and measurable growth curve is present, this is when optimal value can be harnessed and harvested. The dichotomy is that owners often feel there is much more room to grow the business without truly considering the capital, effort, economic and political cycles, and most importantly, unforeseen hiccups inevitably creep into any business. Any of these factors could slightly hinder revenue or EBITDA growth and, in turn, ‘taint’ value within the marketplace. Furthermore, to recapture that same value, the owner would need to reclaim the growth trajectory and demonstrate it over a multi-year period for the market to reward them for their effort, time, investment, and potential risk.

 

Time and time again, we see owners wanting to go to market and receive above-market values. Through the process, clients often “re-sell” themselves on their own business. This thought process frequently inflates owners' original value expectations as they become blinded by future potential value versus the effort and risks involved in today’s economic and political environment. Moreover, many have decided to stay the course, expecting value to rise over time, only to encounter inherent challenges and expect the market to reward them with the same value they received previously. Instead, the market moves on; others within that sector have already harvested that value from them. In most cases, the first group of sellers in a sector niche—dictated either by product, service, or geography—witnesses higher values compared to second movers, as capital/buyers have already placed their “bets” in that vertical/industry. Sometimes, original growth projections do not live up to what was advertised. “The story” and momentum drive value in today’s marketplace, and business owners are served to harvest optimal value when their business is performing well, executing on the growth strategy, and feeling there is plenty left in the tank while fearing they may be leaving money on table. With creative structuring, pro-forma “normalizations,” clearly presenting relevant run rates, rollover equity, and through creative structuring, future value can also be harnessed while capturing optimal market value today versus waiting and potentially losing considerable value due to unforeseen circumstances, weak economic cycles, or various political risks that have become too commonplace for middle-market businesses today.

 

SUMMARY TAKEAWAYS:

1) Harvesting optimal value is when a business owner feels there is plenty of growth left ahead of them versus a plateau in the business. 2) Owners must consider the effort, working capital required, various risks (cyclical, economic, political, etc.), and the inevitable unforeseen hiccups that occur in a business which can crater or damage enterprise value. If a business experiences any of the above, it takes multi-year demonstration of execution to revive that value in the marketplace. 3) Creative structuring, pro-forma “normalizations,” and earn-outs allow the opportunity to realize a portion or most of that potential value today.

 

Jason Patterson is the Founder and Senior Managing Director at Global Growth Partners and has been advising and counseling middle-market business owners for close to three decades. Global Growth Partners Tel: 704-438-9930 / www.globalgrowthpartners.com

Once a business owner has decided that it is the time to explore the sale of their business, the next question that comes to mind is typically “now what?” Many middle market business owners are unclear of their options and how they should go about selling their most valuable yet illiquid asset.

 

First, enlist a competent and proven M&A Advisor to guide you; and ensure that their strategy is to employ a well thought-out and dedicated formal process. The process is critical and, as anything in life, injecting competition with tight timelines turns an inefficient and illiquid market into one which forces value/price discovery naturally and creates a customized “micro market” where the best valuation and, sometimes more importantly, terms are established through competitive market forces.

 

Without creating and fostering those competitive market forces a business owner will not witness true or optimal value and best available market terms for their business. Simply putting a “sign in the yard” or selling to a friend of a friend will not allow a business owner’s most valuable asset to witness optimal pricing (and terms) in the market.

 

The best example of this, and we witness this at least once or twice a year, is a business owner who initially decided to sell his business to one of his competitors or to a company which approached them a few years ago and have been waiting for the business owner to get to their inflection point. The business owner begins one-on-one discussions with that party, agrees to a price and then things stall out, move incredibly slow or ultimately die altogether.

 

Are there any incentive for that acquirer to move quickly or offer the highest price they can? The answer is no… Then they approach our team after much frustration and we discuss their options and suggest employing a formal and highly confidential auction-style process with professionally prepared materials (i.e. a clearly built Confidential Information Memorandum, Financial Model, Data Room, etc.) that are required to ensure the company is proactively marketed which creates the competitive environment and forces buyers to put their best foot forward knowing a formal process is underway and solidifying they are no longer the “only girl at the dance.” In 95%+ cases where we have been tapped to come in and handle the process; that very buyer (the one who had been stalling, low balling or taking their time trying to renegotiate) becomes much more aggressive and in the end our clients have witnessed a significant increase in value, more favorable deal terms and a much more serious buyer. Thus, our involvement in the transaction process represents clear ROI to our clients.

 

There are no short-cuts for business owners to capture optimal value in the market for their company. Entrusting an experienced M&A advisor with an established and battle-tested formal process is the way to prevent regrets, keep all potential buyers honest and achieve the solace that the process was handled professionally and that the business was sold at the highest possible value and best deal terms available in the market – and most importantly the company was sold to the “right buyer”… 

​

Jason Patterson is the Founder and Senior Managing Director at Global Growth Partners and has been advising and counseling middle market business owners for close to three decades. Global Growth Partners Tel: 704-438-9930 / www.globalgrowthpartners.com

Although our roots are local we’ve consciously spent considerable time and investment toward growing an international network of buyers. Why? Because in most successful processes it makes sense to include international buyers because they recognize and drive value. 

 

Many companies especially in smaller markets urn to brake into the U.S. market but few understand the nuances of the American market nor are most connected to a network where they see many opportunities within the U.S. When we are able to introduce a quality opportunity to an international buyer (be it strategic or financial) many appreciate it and in most cases in an auction style environment they put a premium value on a business. Whether that is derived from the typical premium value of businesses abroad, the lack of true middle market sized opportunities in their home market or the lure of the pure size and maturity of the American market, it all plays a hand in that perception. Now they generally usually take a little longer to gain consensus internally and can slow a process down slightly, usually the value created in including them in a process is well worth the effort, even if they are not the eventual buyer of your business.

 

Moreover, we expect this to be intensified as the administration have vocally proposed tariffs and is dedicated to removing regulatory barriers which has made many international buyers shy away from U.S. deals over the most recent years. This, on-top of the tax changes, increases the attractiveness of targets within the U.S. Establishing a platform in other locales internationally now not only have more political risk, more regulatory barriers and few are as competitive from a tax perspective.

​

While tax and regulatory are critical components to international buyers, one fundamental component which we see truly astute buyers focusing on, especially manufacturing based European and Asian businesses is U.S. commercial utility prices. Operating a manufacturing or distribution plant, day on day, energy is key. The U.S. has a decisive advantage when it comes to utility pricing. There are a few places where it is cheaper but there has to be some comprise in quality of workforce and some measurable level of political risks.

​

Any buyer will have a hard time finding more economical and reliable utility infrastructure than in the southeast U.S. This coupled with the removal of regulatory barriers is pathing the way for international manufacturers to increase their activity in looking for U.S. based targets. Any robust sell-side process should include well vetted international buyers as this momentum is expected to persist.

​​

Jason Patterson is the Founder and Senior Managing Director at Global Growth Partners and has been advising and counseling middle market business owners for close to three decades. Global Growth Partners Tel: 704-438-9930 / www.globalgrowthpartners.com