With merger & acquisition activity running rampant, timing proves to be a critical factor in determining company value
As you’re busy managing the day to day challenges of your business, how often do you stop and think about what’s happening in the world around you? Particularly, what’s going on in your industry that you might not be aware of. And despite you’re lack of awareness, how might these outside forces be impacting your business? If you’re like most of your entrepreneurial peers, you would probably say that you don’t have time to think about anything other than the inner workings of your business if pressed with these questions. Yet with what’s happening in today’s markets, you can’t afford not to spend considerable time thinking about those outside influences.
As an investment banking firm, Tullius Partners has worked with small, medium and large businesses, mostly in the capacity of facilitating merger, acquisition and sale transactions, for over 25 years. In that span, we’ve been involved in several hundred transactions. And without question, the single largest factor in determining the success of an owner’s investment in their company is the timing at which they made various moves over the life of the business. Yet most business owners today do not appreciate the significance to which the element of timing matters. And considering that we are presently in the midst of a strong “seller’s” market overlapping many industries, the failure to do just that is a costly mistake that, unfortunately, many business owners will make.
So when is the right to capitalize on the value of your business? One of the first things to realize is that you’ll never know when the absolute best time to sell is. Like predicting the future, nobody can do that without some element of speculation. I can tell you, however, that I have witnessed people so paralyzed by trying to ensure that they sell at that exact perfect moment, when all of the proverbial stars are aligned, and as a result of that paralysis, they miss the “window of opportunity”. When it’s all said and done, and with the benefit of hindsight, there are some sellers that will say had they waited a few more months or years, they could have fielded more for their business. And perhaps they’re right. But in nearly every case, the amount a seller “leaves on the table” is much less when they sell too early than it is when they sell too late.
Too often, company owners are driven to sell because they’re either ready to do something else and “move on” or they lack the necessary resources to further grow their business. While these are certainly valid and understandable reasons, they aren’t motives that generally put people in a position of negotiating strength. Business owners tend to have one thing in common amongst them and that is the desire to sell their business at the highest price. How can you give yourself the best chance of doing just that? As with most any other goal, it starts with a plan.
Some people do get lucky. And yes, sometimes those people never had a plan. But that’s an awful excuse for not having one. You may still get lucky even though you have a plan. But without a plan, your ability to capture success is left to only luck. A good motto is to always be prepared to sell your business, yet operate with the mindset that it will be yours forever. To that end, you should plan a course for your business that will culminate with an exit strategy. It’s not important that you set an exact date at which you will exit (in fact you should not set an exact date), but rather that you identify a range of time, say within a two or three year horizon. As part of your plan, consider what you want your business to do for you and thus what factors you would like to drive the eventual sale of your company. Is it an amount of money, a certain age, the size of the business, or a combination of these and other factors? Once these factors are identified, you need to determine what it’s going to take to get the business to where you need it to reach whatever milestones are important to you.
When developing your plan, make sure you think about what’s going on in your market, your industry and the world economic markets. Force yourself to take an objective look at what’s happening in these areas, talk to other people and speculate on what certain trends could lead to in the timeframe of your exit strategy. Too many business owners operate as if the value of their company is and will be strictly a function of its internal condition. So emotionally tied to their business, they fail to appreciate that however unfortunate it may be, a company’s value is very much dependent upon outside conditions, largely beyond their control. As a result, they plan for selling their business when they think its value will be high, as measured by internal performance, with little if any consideration to the external forces.
Finally, make it a prerequisite that you be prepared to call an audible and change on the fly if necessary. By proactively heeding this advice, you will in fact position your company such that you are able to take advantage of those special opportunities that come along so infrequently. Because remember, timing is everything!
Lance R. Tullius is a principle with Tullius Partners, an investment banking firm that specializes in providing merger and acquisition, corporate finance and financial advisory services to middle market companies. For more information, visit the firm’s website at www.tullius.com, call at (503) 236-9955.
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