With M&A Deals, Timing is Everything
Business owners frequently ask whether the time is right to sell their business. Timing can make all the difference in getting a premium value for your business. If all signs are positive, more buyers will be interested, investors and lenders will feel that, and deals will go more smoothly. But getting the timing right is tricky and depends on many variables that I will review here.
Business Results and Trends
How is the business doing? This one question can lead to getting premium value on a sale. When sales, backlog, and profits are up, it’s the perfect time to initiate a sale. Meeting or beating forecasts is the grease that fuels the deal process and gets competitive bidding fires burning. Missing forecasts is a problem, as it seems like you get dinged several dollars for every $1 of forecast missed. Commonly, we hear from owners who want to sell after a few bad months, but then change their minds after a few good months. In fact, if you want the best deal, the opposite is true: Owners and management teams need to stay focused on business results while working their second job of selling the business.
Industry Trends
A positive industry balance sheet helps everyone involved, including buyers, sellers, investors, lenders, and others. Conversely, when a business is doing well in a down industry, it helps the company stand out. You can still get a premium value when you sell your business.
Buyers’ Status
The seller may be doing everything right with their business, but if the buyer’s business is having issues, it may be tough to get a deal done. Sellers should do their due diligence on the buyer and their investors in advance, especially if a large part of the deal is in after-closing compensation, such as earnouts, rollover equity, seller notes, etc. The seller might worry that the buyer cannot come through. Even if the deal is all cash and the seller will walk away soon after closing, the seller may still worry the buyer is not the best custodian for the company’s employees and other stakeholders. A buyer may be doing well, but they may have two or three other deals lined up ahead of yours or are too busy shipping products to focus on deals.
Equity and Debt/Investor Sentiment
Usually, if the company and industry are doing well, then investors and lenders will be positive about the deal as well. Sometimes, an industry can be counter-cyclical to Wall Street, which is not optimal for promoting a premium deal value, but deals can still be completed in that situation.
State of the Economy
The overall state of the economy is a key factor in getting a great valuation for a seller. If everyone is feeling good about the economy and jobs, it helps all aspects of a deal. Conversely, if the economy is slowing and everyone is tightening their belts, then enthusiasm for deals can fall and all data is scrutinized more carefully. Changes in tax laws can impact the after-tax proceeds of a deal, so it is important to have a great tax/wealth advisor to help the seller through any potential changes.
World Events
Everything can be going swimmingly with a deal and then suddenly a fire, earthquake, rocket failure, or political unrest on the other side of the globe occurs; the deal is put on hold. It is impossible to control these events, so just keep the deal moving rather than waiting for the dust to settle. Even a global pandemic didn’t keep deals down for long.
Your Personal Status
The biggest factor is one that the owner can partially control: your readiness to sell. As a seller, be sure that for you, personally, the time is right. It is difficult to start and stop the process. Of course, health and family issues can influence a deal, but if the owner is otherwise well-prepared, it’s more likely that a deal can overcome any issues. Once an owner commits to selling, it is important to stay positive, communicate, and keep things rolling. It is good to always be ready, since a great opportunity comes knocking when we least expect it.
Something Will Go Wrong
Murphy’s Law dictates that something unusual will happen during a deal. Each deal has peaks and valleys, just like there are ups and downs in life and business. Carefully monitor what’s in your control; don’t worry about what you can’t control. For example, just when everything is working in your favor, the buyers start to worry the industry will trend downward or that because times are good and everyone wants to sell, the market may seem overcrowded.
It’s important to establish trust early in the process; be sure there is a great fit, communicate often, and make going forward the “default position” instead of hitting pause every time there is an issue. Rather than just hoping all the planets line up to create a good sale, a little planning, and smart decisions about timing can lead to where you want to go.
Tom Kastner is the president of GP Ventures, an investment banking firm focused on sell-side and buy-side transactions in the tech and electronics industries. GP Ventures has offices in Chicago and Tokyo, with five people in total. Tom Kastner is a registered representative of, and securities transactions are conducted through StillPoint Capital, LLC—a Tampa, Florida, member of FINRA and SIPC. StillPoint Capital is not affiliated with GP Ventures.
