M&A Timing - When To Sell

When considering the sale of a company, it is useful for the seller to have a target date for when they would like to sell. However, there can be disadvantages to having too firm a deadline. With regard to a lower middle market company, i.e., one with less than US$250 million in revenues, a seller should always be ready to take advantage of market conditions or be opportunistic. Furthermore, sellers should always try to sell on an uptick, i.e., when the company is doing well.

Many sellers wait too long. Things change: market conditions, consumer behaviors, competitors creeping in, etc. Or, the economy changes like it did in 2007 and the US entered the Great Recession. In these cases, the seller misses the “window” to sell for a high valuation. To keep it simple, company owners should think of their companies like fruit - it matures, ripens, and should be sold before the value expires.

The best operators understand that it’s important to always to have the company in the best possible shape, with all the paperwork, financials, and other information in order to be able to take advantage of market conditions. It’s always best to sell before one has to sell. Many owners wait until they have a medical reason, a family situation or something else that impacts the M&A process and the final value in an extremely negative way. To summarize, it’s better for the seller to be early than late or possibly not be able to sell at all. (Over the last 30+ years, we have seen company owners lose most or all of their company’s value by waiting too long.)

Potential sellers should not be hesitant to engage an M&A professional to help them determine the best timing to conclude a successful sale. And, if the timing is right, the seller should always hire an M&A professional to increase the probabilities of a successful sale.

With few exceptions, all companies can be sold at any time; however, the best time to sell a company is when it is profitable and growing. Many sellers believe that their company will continue growing and increasing profits forever, but in most cases, something changes and the company’s perfect track record is shattered. The risks are high because when this happens, it has a definitive negative impact on the valuation.

It’s not always easy to time it, but the best way to achieve the highest value is to be ready to sell when the company is profitable and growing, when the economy is strong, and when the seller doesn’t have to sell. Of course, aligning these things may not always be possible. The next best scenario is if the company is growing and profitable. Thus, any company owner that has a company that has a positive track record should consider selling, even if the timing is different (even earlier, for example) than their original target date.

When a company’s performance is modest or the economy isn’t doing well, it’s especially important to engage an M&A advisor. He or she should be able to identify and contact buyers, on a worldwide basis, which will mitigate the company’s modest performance. Frequently, an international buyer will recognize the value and a successful transaction will be concluded.

As a result of doing M&A for more than 30 years, I have a clear bias for sellers to sell earlier rather than later. We’ve seen more sellers that have sold “early” make more money than those who held on too long. The risk of not selling at a high valuation grows over time because markets change, products change, consumer interests change, etc. The smartest sellers are those that get asked by buyers if they are selling too early. The alternative, selling too late, puts the seller at considerable risk to sell at a reduced value or miss the opportunity to sell.

Versailles Group is a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures. Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million. Versailles Group has closed transactions in all economic environments, literally around the world. Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987. More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava
Founder and President
617-449-3325

April 7, 2016