ICON66 – Volume 6
Timing Your Run
"When is the best time to sell your company? And, What are the factors to consider?"
THREE CYCLES
There are three
key cycles
to consider
and, if you
can align them
all, then you
are very lucky
and should
get an exceptional
price for your
business.
The three key cycles are:
THE MARKET
Market conditions
are arguably
the most important
factor, always
sell on the
up. If markets
are contracting,
confidence
dips and many
trade buyers
will simply
not make acquisitions
at all. So
you need to
keep an eye
on market conditions;
both the macro-economic
indicators
(interest rates,
stock markets)
as well as
technology
sector indicators
and M&A
trends.
The market has recovered strongly from the wobbles of 2002/3 and deal volumes and values continue to grow. Conditions are currently as good as they have been since the top of the last market peak in early 2001.
COMPANY
Trade buyers
want to buy
growth. The
more you can
demonstrate
that your business
has grown and
will continue
to grow, then
the more the
buyer will
pay. The key
here is demonstrating
that you have
consistently
grown profitably
and generated
cash flow,
yet leaving
enough growth
on the table
for the buyer.
He is buying
the ability
to generate
future cash
flow and needs
therefore to
buy into your "growth
story".
Consistency
of earnings
is also important;
a lumpy earnings
pattern is
very difficult
to value and
puts off acquirers.
INDIVIDUAL
Private businesses
will face individual
shareholder
pressures to
realise shareholder
value. It may
be because
a VC or business
angel needs
to realise
their investment
in a given
period or because
of other factors
such as retirement,
disagreement
or most commonly
boredom by
longer term
owner-managers.
If these factors
can be managed
to align with
the market
and company
cycles then
it will clearly
be to the benefit
of all shareholders.
Another key
point is that
owner-managed
businesses
actually need
to be sold
before you
want to exit
the business.
With your commitment
for at least
a reasonable
handover period
it inevitably
lowers the
risk for the
buyer, benefiting
price.
OTHER FACTORS
AFFECTING TIMING
Despite your
best plans,
the timing
of deals can
be de-railed
by any number
of factors
outside your
control such
as: stock market
crashes, 9/11,
political events.
In fact your
chosen purchaser
may, themselves,
get taken over.
In many cases
there is little
you can do
to affect these
issues. However,
the most common
reason for
deal failure
is a change
in business
performance.
It takes six
months to sell
a company.
So you need
to keep focused
on managing
the business
and stay out
of the car
showrooms,
property exhibitions
and boatyards,
at least until
after the deal
is done! If
you want to
talk to ICON
about grooming
your business
to maximise
your exit value,
contact Brian
Parker at brian@iconcorpfin.co.uk
WHAT BUYERS
ARE LOOKING
FOR:
~ Growth in
revenues -
historic and
future
~ Attractive
profits and
cash flow record
~ Visibility
of future revenues
~ Strength,
depth and commitment
of management
team
~ Brand or
product recognition
in chosen segment
~ Scalable
business model
~ Potential
cost or revenue
synergies
~ Current technology
~ No surprises
WHEN NOT
TO SELL
~ Market, sector
and company
cycles not
aligned
~ Reliance
on too few
clients/employees/suppliers
~ Significant
contract renewal
imminent
~ Inadequate
working capital
~ Lumpy trading
patterns
~ Business
ex growth
~ No planning
- management/processes/housekeeping
~ Sub scale
~ Contingent
liabilities
- legal, technical,
etc
