25 Apr Around the Web: A Week in Summary
A recent article posted on the Axial Forum entitled “How 6 Senior Bankers Are Advising Sellers in a Frothy Market” addresses how senior bankers are advising sellers in a market where valuations are the highest we have seen since 2007 and where the sustainability of the market is a concern. One banker explains how despite the increase in pricing, middle market lending multiples have remained relatively constant at an average of 4-6X cash flow. He also notes that he does not see today’s PE-sponsored leveraged deals as any more risky than they were 3-5 years ago.
The importance of due diligence was also emphasized and one banker explains how it has become more extensive in 2018 compared to 2007. Buyers are being more thorough in their due diligence and sell-side diligence is becoming more common. He advises his clients to conduct their own sell-side diligence to prepare for the sale process. Buyers are also being more selective with the higher valuations so it is important for sellers to show that their company has growth and profitability.
A common factor we can see from several bankers is how important timing is. Many business owners regret waiting too long to sell, so now is a good time to assess if you have a credible plan for competing, thriving and growing in the current marketplace. High valuations like this will not last forever so owners should explore their options even if they were not planning to sell now.
A recent article from Inc.com entitled “The Art of Finding the Right Buyer for Your Business” gives us three essential items to consider when selling a business.
- Set goals – The first step is to set goals for the future of your business, yourself and your family. You’ll want to consider factors such as how the transaction will affect your employees, if you will continue on as a team member or transition out of the company, and what your overall goals for the company are. This will help you and your advisor customize the sale process.
- Explore options – Be sure to know the difference between a private equity group and a strategic corporate buyer, and find out how they can benefit your business. There are also “family offices,” which are investors who manage the wealth of a family or multiple families, but they hold a business forever.
- Keep an open mind – It’s especially important in the beginning to stay open to both types of buyers and find a good advisor who can help guide you towards the right buyer. Whether they are a financial buyer or a strategic buyer, you don’t know how they are going to handle the future of a company until you get to know them.
A recent article posted by Viking Mergers & Acquisitions entitled “5 M&A Obstacles and How to Prevent Them” gives us 5 issues to avoid when selling a business. Knowing about these potential problems ahead of time and working with a professional intermediary will help your chances of having a successful business sale.
- Unqualified buyers – Work with an intermediary who can properly vet potential buyers so you do not waste time with unqualified buyers.
- Mixed feelings – Take your time in making the decision to sell your business and make sure you’re ready to move forward with the process.
- Poor books and records – Inaccurate bookkeeping can deter potential buyers. Work with your CPA to make sure all of your books and accounting is in order. Your advisor can also help you prepare your financials before you sell.
- Outside advisors taking over the deal – Make sure that you use an attorney who has previous transaction or M&A experience, to prevent an inexperienced advisor from taking control of the sale process.
- Undisclosed issues – Be upfront and honest about any issues from the beginning and try to resolve any problems before selling the business. Most likely, these issues will come up during the due diligence process, and could discourage the buyer if they come as a surprise during their due diligence.