Is Now the Right Time to Sell Your Business?

By Stephen R. Rusch
Gray Strategic Partners, LLC

Everyone is broadly familiar with the private equity business. Private equity funds use pools of equity capital to acquire and/or make investments in businesses often using debt to “lever” their returns. They are in the business of buying and selling businesses. Accordingly, everything is for sale at the right price. Businesses owned by families and entrepreneurs are different. The business is often the primary livelihood of the principal owners, includes a lengthy family legacy, confers social status on the owner/operator and perhaps an emotional attachment. However, there are myriad reasons for owners to sell or seek some sort of liquidity event. These reasons include (among other things), retirement, generational succession, the buyout of other shareholders, or simply the rationale desire to “derisk” wealth concentration.

When is the optional time to sell?  In truth, it depends on the objectives of the sellers.

Timing isn’t Everything….

Obviously, business performance matters as do market & economic conditions. Clearly, good business performance, strong sector trends, a healthy financial system, and robust economy are ideal conditions to maximize value in the sale of a business. The opposite is also true: when all of the earlier noted conditions are poor, it is most certainly a suboptimal time to explore a sale. However, both cases are rare. The stars are seldom perfectly aligned, and it is also uncommon that the “sky is falling.” Transactions are completed in all sorts of market conditions. In general, however, if a business is performing well and the industry and economy are in “normal” conditions, then an attractive exit is generally possible. Timing the market is difficult. The best time to sell is when the business owner is ready.

…Except When it Is

It is important to be aware of activity in the industry in which the business competes. Industries consolidate, face technological disruption and consolidation, as just a few examples. These situations require more game theory. If for example, a business owner views significant technological disruption over the horizon, then an exit sooner, rather than later, may be wise. Being the first to exit may give a larger player more scale to compete in a changing environment, while waiting too long could mean that all of the buyers have already made their bet on the future. If the industry is consolidating, one of the better scenarios is having multiple strategic buyers that either need a business or product line, or want to prevent it falling into a competitors’ grasp. That creates real competition. The caveat is that, if a seller waits too long, the industry may be consolidated – they may no longer be relevant and end up competing with deep-pocketed corporate giants. Timing is highly relevant here.

Personal Readiness

A word on the decision to sell. Business owners must be ready to sell and should articulate clear objectives. A 100% sale with maximum proceeds that allows an owner to go to the beach is different than a partial sale with ongoing ownership and business responsibilities. In practice, there may be hybrids of these options (consulting contracts, transition periods, board memberships, etc.). In addition, business owners should identify whether the continuation of legacy, location, employees, or other areas are of importance, as that will inform any sale effort. Further, business owners must consider tax planning and wealth management in advance of exploring a sale.

Maximizing Value & Achieving Objectives

In an earlier article, Gray Strategic Partners described the process of maximizing value (or achieving objectives) in a sale transaction or liquidity event. Up-front preparation is key as well as a generally robust marketing effort to create competition. An investment banker generally leads that effort. The investment banking team creates a marketing document, contacts investors, solicits proposals and negotiates a purchase agreement. Any sale process is highly complex and a qualified advisor can lead a business owner through the effort.

When a business owner sells, it is not the end of your journey; it’s the beginning of a new chapter. With the right preparation and guidance, this chapter can be filled with financial security, personal fulfillment, and the satisfaction often with the knowledge that the business legacy will endure.