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Is Now Really The Time To Be Thinking About The Sale Of Your Company

Mar 26, 2009

You might be in the enviable position of focusing on a niche that is growing and thriving. Given the challenges today, this is a nice situation to be in. It would be natural to consider whether now is the time to "take some chips off the table".

But what if like many companies, you are experiencing flat or dropping sales, even battling to "stop the bleeding" from losses?

If the latter applies to you, the LAST THING on your mind is thinking of a sale of your business. After all, who wants to sell when the chips are down, right?

However, you may need to sell, or simply "want out". Or you may have a sale as a goal for some time "down the road" as you near retirement.

In all these cases, your challenge is how to maximize the value of your company given the circumstances.

Regardless of which situation applies, in my experience it is never too early to start positioning your company for an eventual sale, even if you have no intention of going down that path today. There are definite benefits to doing so, both short term and long term. But while it is never too early, it is possible to start too late - at least if you want to maximize your value. Let me explain.

When going through the process of selling your company, you will have many discussions about value with lots of people. You've probably heard that buyers use some multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), or a multiple of Revenue or other similar techniques to determine what the company is worth to them.

While it is true that historical earnings are usually a major driver of value, what someone is really buying is the "future" earnings potential of your company.

Often there is more to the value equation than the earnings your company alone can generate, particularly to a ‘strategic' buyer. These kind of buyers typically can combine your operation with an existing one they have in order to create a situation where "2 + 2 = 6" in terms of earnings. Sometimes this is referred to as "synergy" from an acquisition. This kind of buyer may want to build on your company as a starting point for more acquisitions and systematically create this synergy, or they may be using your company to get into a market that would otherwise be very difficult for them to enter.

In other words, your company does more for a strategic buyer than just add your earnings potential to their earnings potential - it amplifies it. You might have a management team, key people, capabilities, products, processes, clients, contracts, a track record, a reputation, etc. that they can put to use and leverage in novel ways because of other resources they have. Buying your business allows them to leap ahead of where they would be otherwise. For a buyer, ‘building' the capabilities or products to enter the market niche you are in is usually too costly, too risky and too time consuming. So the value of your business to a strategic buyer is often higher than for others. This additional amount they are willing to pay is called the "strategic buyer premium".

Not long ago, I was involved in a challenging turnaround of a company. This was followed by the unanticipated, very successful sale of this same company to a strategic buyer.

I learned a number of valuable lessons through this turnaround and sale. But the most important one was this: the decisions you make about both the strategic direction of your company and you how you operate it, have an enormous impact on your company's value to a strategic buyer. To create this additional value, you must plan for it ahead of time - with the end in mind.

We were fortunate to have made a number of good decisions directionally, and in how we operated, all well in advance, so that when the opportunity for a sale to strategic buyer presented itself, we were ready.

Once you actually begin the sales process and are working with a buyer, a good advisor can help position your company for maximum advantage. But for the most part, gaining a ‘strategic buyer' premium is a result of "who your company is" at the time you do the sale. If you have not done your homework ahead of time, it will be difficult to improve on your prospects. The way to impact this is to work in advance, with specific objectives. Much like a coach trains a winning team.

A B2B CFO® Partner can act as your "personal coach" in maximizing your company's value. We have even created a specific program called "Finding the Exit" to guide you through the process of preparing your company for a sale. This way when you do decide to "exit" you are really ready and more likely to attract the right kind of buyers and achieve a better value.

The good news is that the overall health of your business today will be enhanced through this process. So even if you don't decide to sell, you will be better off than if had you not made the effort.

I will share some of the lessons I've learned on maximizing value in the midst of a challenging period in my next post.

For more information on preparing your company for a sale please contact B2B CFO Partner Jon Rodriguez at 760.297.0744 

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