When to sell my business
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Transcript of When to sell my business
![Page 1: When to sell my business](https://reader036.fdocuments.in/reader036/viewer/2022062523/587328861a28ab596c8b5199/html5/thumbnails/1.jpg)
Presented by:Nick Stanley
Partner
Timing the Marketor
“When to sell my business”
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Three Primary Motivations
• Strategic business reasons – Competitive position of company within the marketplace– Company needs some combination of capital and talent– Industry trends, and increasing speed of evolution
• Investment reasons– Risk, Return, Liquidity, Yield– Efficient frontier, modern portfolio analysis– Is the return I’m receiving adequate for the risk I’m taking?
• Personal reasons– Health & Age– Allocation of time and resources– Appeal of an alternate investment/career– Family dynamics
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Three Realms to Consider
CompanyGrowth Stage
Current TrendsCompetitive Landscape
Technology and IPProduct Pipeline
Capital RequirementsManagement Depth
M&A MarketEconomic Outlook
Interest RatesAvailability of Credit
Supply of Quality CompaniesAggressiveness of Buyers
Number of Buyers
OwnersOwner Alignment
Age, Health, DivorceEstate Planning
Personal Retirement TimingFamily Considerations
Liquidity, Risk, Yield
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Value Considerations
• Company history, maturity
• Revenue size, growth
• EBITDA, EBITDA growth, EBITDA margin
• Capital requirements
• Technology and Intellectual Property
• Product line, product pipeline
• Competitive position within the market
• Performance of company in relation to performance of market
• Quality and stability of management
• Legislative and regulatory environment
• Brand value
• Barriers to entry
• Growth prospects
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Transferable Value Considerations• What is the company worth without you?
– Move from working in – to working on the business• Management Depth• Customer Concentration• IP issues• Financial Statements• Non-related assets
• The value generation of planning is significant– Larger than most business owners realize
• Easier to preserve value than create it– Yet most business owners focus on the opposite
• Some planning techniques require 5 years to mature– Most exits will require a 6-24 month owner transition
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Company – don’t wait too long
All companies have life cycles.Do you know where you are in the cycle?
The consequences of waiting too long can be dire.
Renew:Capital & Talent
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Why sell when things are going so well?
Remember 2008?The market can change quicklyThe exit window can close completely
• If you recognize that the company is on the downside of the cycle – so will the buyer • Owners would be wise to recognize it is a significant challenge to find buyers for
companies that have passed their peak.• Buyers are buying a vision of the future, and most require credible growth prospects. • Sell while there is still clear, identifiable upside available.
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Owners - while I can still enjoy it
Quality of life matters Financial peace of mind is a reward worth the effort
Mortality is certain and unpredictable
Where is your nest egg? In one asset or 50? In one industry or several? In one country or global?
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The golden goose can have a dark side• Owners tend reinvest the vast majority of free cash flow back into their business. • Most owners, due to their intimate knowledge of the industry, and an entrepreneurial
optimistic bias, tend to dramatically underestimate the risk inherent in wealth concentration within their business.
• Approaching age 60, this concentration risk becomes inappropriate. – Concentration risk, can become a real and present danger– Excellent markets eventually turn to average markets– Failure to optimize the exit could force a dramatic downward shift in lifestyle
• History is littered with examples of owners that waited too long to exit or transition
• Don’t let the golden goose prevent appropriate diversification.
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Market – Currently Excellent (2016)
Historically low interest rates
Bank and Non-Bank lenders are aggressive
Competition high among financial buyersStrategic buyers are forced to be more aggressive
$466 Billion PE overhang
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The M&A Cycle• The M&A market is also a cycle, and one with meaningful volatility
• The difference in acquisition multiples in an excellent market vs. a good market is significant
• For a typical privately held business, it could be 2x to 3x additional turns of EBITDA
• How long will the strong market last?
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The Delta is Large
• Sell now in excellent market– Ebitda of 5 x 7 (excellent) multiple = 35
• Try to grow the company, then sell in a few years in average market– Ebitda of 6 x 5 (average) multiple = 30– Ebitda of 5 x 5 (average) multiple = 25– Ebitda of 4 x 5 (average) multiple = 20
• In poor markets, the economics and the number of buyers are reduced– Ebitda of 4 x 4 (poor) multiple = 16
– May not be able to find a buyer
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Balance and TimingBalance and prioritize the 3 primary motivations & 3 realms.
All else being equal - A strong market should trump conventional timing.
Consider making a significant timing adjustment to align with current market conditions and take advantage of valuation opportunities.
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Beware the bear hug
• Don’t get seduced by a single buyer– Easier process, until the negotiation begins– Shorter time, but more likely to fail– Typically less value, but the seller never knows for sure – Impossible to negotiate effectively with only one buyer– Re-trading of initial offer is common. – Walking away is expensive
• Failed sale attempt history• Difficult on owners and management
• Don’t let someone else set your timing
• If the time is right, engage in a process
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Proactively Manage the Circles
• Be proactive owners tend to underestimate the impact of pre-liquidity planning
• Owners tend to underestimate the value of timing the M&A market• Asset traders are engaged in market timing - business owners should do the same
• If not ready for a complete exit, consider a partial exit– 2nd bite of the apple strategy - allows for a half step out– Defers the emotional loss of identity for another 5-7 years
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Get the best advisors availablePre-liquidity estate planning Pre-liquidity tax planning
Investment banking advisory Transaction legal advisory Post transaction wealth management advisory