Question
How do I know when the timing is right to sell my business?
Answer
Historically, at a high level, we know that the M&A market runs in cycles. Understanding the broad market as to where we are in the overall M&A cycle is step one. But, that’s not always the best indicator. That’s only one element of understanding when it’s right to sell. Determining when to sell should also take into consideration the specifics of the industry and what’s happening within a given industry. The best time to sell is when the industry trend is going positive at the same time that the M&A trend is positive.
So for example, if you have a Software as a Service (SaaS) company, you should consider the broad technology trends. Where does the company fit in the industry, and who are the other players in that space? You can begin to get a sense of if the timing is right and if the dynamics within that industry will value or appreciate what your company has to offer strategically as well as the core economics of the business.
Particularly if you think about the lower middle market, we tend to deal with this issue of the company has made investments that haven’t materialized or have been realized in the P&L. The business owners are always wanting to get paid for value that’s inherent in the business but isn’t showing up yet in the company's cash flow. One of the best ways determine the right time to sell is to really articulate and understand that strategic component of the business and how it plays into a market trend in a positive way. When this is mapped out, you will be able to determine if you’re on the growth curve that buyer like to see; you’re not too early in it but you’re not at the very peak either. When you wait until you get to the peak, it may be too late to sell for maximum value.
So for example, if you have a Software as a Service (SaaS) company, you should consider the broad technology trends. Where does the company fit in the industry, and who are the other players in that space? You can begin to get a sense of if the timing is right and if the dynamics within that industry will value or appreciate what your company has to offer strategically as well as the core economics of the business.
Particularly if you think about the lower middle market, we tend to deal with this issue of the company has made investments that haven’t materialized or have been realized in the P&L. The business owners are always wanting to get paid for value that’s inherent in the business but isn’t showing up yet in the company's cash flow. One of the best ways determine the right time to sell is to really articulate and understand that strategic component of the business and how it plays into a market trend in a positive way. When this is mapped out, you will be able to determine if you’re on the growth curve that buyer like to see; you’re not too early in it but you’re not at the very peak either. When you wait until you get to the peak, it may be too late to sell for maximum value.
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Written by Kenneth H. Marks
Mr. Marks is the founder and Managing Partner of High Rock Partners, Inc. He is the lead author of Middle Market M&A: Handbook of Investment Banking Business Consulting and Handbook of Financing Growth: Strategies, Capital Structure and M&A Transactions, 2nd Edition both published by John Wiley Sons, and he authored the publication Strategic Planning for Emerging Growth Companies: A Guide for Management.
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Resources
- Divestopedia’s M&A Fee Guide 2022 - 2023
- Purchase and Sale Agreement Considerations for Acquirers - Handouts
- Seyfarth Shaw LLP - Survey of Key M&A Middle Market Deal Terms
- Firmex’s M&A Fee Guide 2021 - 2022
- Your Guide to VC Funding
- Financial Services M&A: Consolidation & Innovation January 2021
- SS&C Intralinks® 2021 Corporate Restructuring Report
