Adviser: Picking the right time to sell a company - Crain's Cleveland Business

Business owners work for years to build value in their enterprises, so when they want to sell or recapitalize, the timing of the transaction is important to maximize value. But when contemplating this life-changing activity, many fail to realize that, as the seller, they have one enormous advantage in the typical sale process: The seller decides when to take the company to market.

Factors affecting when to sell fall into two categories: external and internal.

External factors, over which a seller has little control, include:

1. The overall state of the economy. Buyers' valuation thinking is more aggressive when the overall economy is strong. Their mentality often becomes "Don't miss this opportunity!" instead of "What could go wrong?" A stronger economy drives competitive bidding, favorable deal structure and higher multiples.

2. The state of the economy in the seller's markets. Even more important than the overall economy is the health of the seller's market segment. What difference does it make if the Gross National Product will increase 4% if the seller's market is in steep decline?

3. The state of financing markets. Stock market performance in the seller's field and availability of bank financing are both critical. Sellers can attract buyers who can pay much higher values when the transaction is of proven value and fueled by banks and other debt, mezzanine and equity providers with open wallets.

Internal factors, over which a seller has much more control, include:

1. Company performance. Financial performance is the starting point. When this is positive, the company is obviously worth more. If the seller has experienced declining financial performance, it may be worth delaying a sale until the company demonstrates stronger results. Along with consistently healthy financial results, other performance measures should be considered:

• The backlog. If the seller's current performance is marginal, a healthy backlog of business suggests performance will improve.
• The investment base. If the seller is making a major capital investment (e.g., a new facility), then the company's performance should improve. But the value of such investments generally factor into the sale price only after the investment is made and achieving impact in the market.
• The forecast and its feasibility. Forecasts without support are worthless. A seller must be able to explain the underlying forecast assumptions (e.g., sales growth from new products, margin improvement from lower-cost suppliers).

2. The seller's management team. If there are holes in the management team, fill them before the sale process begins. After that, it's extremely difficult to recruit the sharp people that appeal to buyers.

3. Positive publicity. If the seller is going to be introducing a new product or receiving an important new contract, either of which would be covered by the media, let these things happen. This type of news gives the seller added credibility.

4. The trade-show season. Maintaining confidentiality is critical in most sale processes. One of the easiest ways to compromise this is to go to market right before a major trade show. Why? Once the camaraderie takes hold and the libations start flowing, many buyers find sharing the latest information irresistible. Once rumors start, they can spread like wildfire.

5. The audit cycle. The seller must present its financial situation, either in an audited, reviewed or quality-of-earnings report format. Go to market after the audit has confirmed the company's financial performance, as well as uncovered any issues that need to be rectified.

6. Holidays and vacations. If possible, sellers should not approach buyers in August or December, when many buyers' minds are on vacations or holiday celebrations. As a result, the seller's confidential information will be on multiple desks, getting more stale by the day.

Finally, when deciding on the best time to sell, the only thing worse than going to market too early is going to market too late. If sellers want to attain liquidity and the company is well-positioned for a sale, it's usually best to go ahead. The calendar is the enemy, as myriad unexpected events can happen to make the company less marketable. Downturns come, key executives quit and new competitors arise. It generally takes at least five to six months to sell a company, and its valuation can fluctuate by 10%, 20% or 30% based on when it goes to market.

Filippell is a managing director at Citizen Capital Markets.

Let's block ads! (Why?)

"company" - Google News
December 14, 2019 at 04:00PM
https://ift.tt/2PXU76H

Adviser: Picking the right time to sell a company - Crain's Cleveland Business
"company" - Google News
https://ift.tt/33ZInFA
Shoes Man Tutorial
Pos News Update
Meme Update
Korean Entertainment News
Japan News Update