Deciding to sell a company is one of the biggest decisions any business owner will make. Selling means letting go and moving on — and it’s very hard to do. However, the benefits to selling and achieving the value for all the blood, sweat and tears that have been put in to making the business a success, mean that M&A activity in the UK is very active right now, even with the current uncertain political and economic environment.
An M&A exercise will normally take six to nine months to complete, so it is imperative that business owners factor this timing into their decision about when the best time to sell is.
Firstly, the business must be prepared for a sale.
This is not only in terms of being ready for a due diligence exercise, but also having a succession plan for the exiting shareholders. If neither of these things have been actioned, it will reduce the likelihood of a successful transaction dramatically.
Secondly, the sellers must be prepared for a sale.
The six to nine-month process is intense, and whilst it is the job of M&A advisers to take as much work away from the sellers and management team as possible, the process will require significant time commitment from the sellers and therefore it is very important that they are mentally prepared for this. Every sale process is a massive rollercoaster of emotions; there will be ups and downs all the way.
In addition to this, the sellers must be prepared from a personal perspective. What will their personal life look like without owning their business? This is particularly important if the seller is involved in the business on a daily basis. If the personal aspects of the sale have not been considered, it is usually not the right time to sell!
Thirdly, the business should be on the right trajectory.
The best time to sell a business is when it is demonstrating sustainable growth, before it gets to a stage of plateau or decline. Acquirers place more value on a growing business; a flat or declining business may deter potential buyers as they begin to ask why the business is not growing and whether there is anything that can be done to initiate growth post-acquisition.
A seller may not want to exit too early as they may not achieve maximum value, but at the same time must avoid potential hiccups that could result in value being reduced. These hiccups are often unexpected or could be caused by wider economic factors that are out of the control of management. More risk averse business owners may decide that now is the right time to sell, knowing exactly what their business looks like today, and letting someone else take the risk on potential future growth. Clearly, riskier sellers, with less time pressure, may decide to gamble on the business growing further and therefore achieving greater value down the line, knowing that if the growth doesn’t occur as planned, they risk getting a reduced price for the business, or not selling at all.
We are, however, seeing more of a trend for ‘partial’ sales, where sellers de-risk by selling a portion of the business today whilst still holding on to some equity in order to benefit from the possible future growth – which sometimes can be enhanced through the infrastructure and synergies brought by a buyer.
Regardless of the trajectory, the business must, however, be at a size and scale that means the value upon sale will meet the personal objectives of the sellers, whether it is to retire, set something else up, or something in between.
To understand more about the right timing for you and your business, or to have a no-obligation chat about the value that you may achieve if you start the sale process today, please feel free to reach out to us at Gerald Edelman. Our specialist Deal Advisory team would be happy to discuss your situation with you.Back to top