Most big decisions in life such as buying a new house or starting a family are difficult and they are made more difficult when trying to decipher the proper timing. What are mortgage rates today? What will they be next year? What if we have kids too soon or what happens if we wait too long? The list of questions goes on and on. It is human nature to second guess your decisions once they have been made no matter how much work and research you have put into coming to that decision or how long you waited to ensure you were ready.
Trying to decipher the right time to seek an exit for your business is perhaps even more difficult. In an attempt to make it a little more manageable we look at six key factors that can help determine if now is the right time to start the process.
1. Leverage the sizzle of your company’s story—sell into a positive trend. Take the time to project an additional 6-12 months of growth and track record. Having positive news/results while you are marketing the business will positively impact the process. Will you benefit from that additional time when it comes to your company’s valuation and attractiveness to acquirers? Alternately, if you wait and in turn require additional funding is your valuation going to increase sufficiently enough to balance the dilution of bringing in additional financing?
2. Be cognizant of market conditions and industry trends—if your industry is consolidating don’t let that wave pass you by because it might be your only window. Market conditions can make it almost impossible for any potential acquirer to open their checkbook and industry trends can have significant impact on the likelihood of your successful exit. Know your industry and make sure your advisor knows it too.
3. Risk of execution—understand the underlying risks that are inherent with getting to the end of a sale process and completing the deal. Can you accept those risks and is your company able to adapt to them quickly and effectively? Are you hoping the exit will save your business and are therefore risking everything on its success? Are you prepared to deal with the consequences if it is not successful?
4. Alignment of shareholder objectives. It is essential that the objectives and expectations of all your shareholders are aligned or you can waste significant time and resources on a process that is destined to fail before it even starts. In addition to making sure everyone wants the same thing (an exit) you have to ensure that everyone is realistic about your company’s valuation range and the companies capital requirements to complete the process.
5. Strategic opportunities are time sensitive by definition. It is essential to not lose momentum at any time during an exit process. Acquirers will not wait for you; they have lots of other companies just like yours who can fill the gap they intended you to fill. Be prepared to move at the speed requested by interested parties. If a potential buyer loses interest it is extremely difficult to get them to re-engage even if they were interested at one time.
6. Be prepared for anything and understand the entire process. Most transactions take approximately 9-12 months from start to finish. In today’s economy and market conditions, some deals are taking as long as 18 months. Don’t be discouraged by this, just make sure you are meeting the buyers expectations promptly. Deals are subjected to much more intense diligence. They have to pass many more thresholds and be approved by more levels of management than ever before. Make sure you have sufficient runway so a cash crunch does not stop the discussions cold.
You may never know when or if a perfect M&A window will open for your business but if you understand and can accept these key factors you will be in a better position to determine if the right time is now or perhaps later down the road. Don’t be afraid of the process. An experienced advisor will be able to help guide you through the process to ensure you maximize the value for you and your shareholders.