Deciding when is M&A right for you and your business.
Are you thinking about selling your business, but aren’t sure if now is the right time? Consider these five questions below. And remember, it’s never too early to start speaking with an advisor who can help you navigate one of the most important decisions of your career.
1 – Is your business growing? If yes, and it has been growing steadily for the past few years, that’s a great business attribute to take to market. Growth versus profitability is key to be aware of, however. Investors in the middle-market will be expecting both, as opposed to venture capital providers who are usually focused on growth over profitability.
2 – As a business owner, do you want to retire or exit the business in the next five years? If yes, you need to start considering your exit strategy now. Most sale processes will take about 8 months, then the buyer will require you to stay on for two to four years to ensure the future success of the business.
3 – Do you have a strong management team in place? Buyers will want to see a strong management team in place that has at least a few more years of runway. If you’ve been considering hiring a new member in the C-suite, we suggest you do it now and allow them time to integrate prior to pursuing a sale; otherwise, hold off.
4 – Are your financials ready for buyer scrutiny? If yes, great. If no, it’s time to explore one of three options – bring on a strong CFO or Controller, use a third party CFO, and/or hire a third party accounting firm. When it comes to your financials, always keep the broken window theory in mind – if buyers see one thing that’s questionable, they’re going to wonder what else they haven’t found yet. For more information on this topic, listen to our podcast, “Accounting Principles to Consider Prior to Selling Your Business”, with Pat McKay from Templeton & Co.
5 – Do you have the scale many investors and strategic acquirors are looking for? The magic number you hear thrown around for services companies is $20m in revenue – while that’s not a hard and fast rule, it’s a great rule of thumb to work towards as you’re considering the timeline for your sale. If you’re not at $20m revenue, but feel it’s time to exit your business, other financial benchmarkers that buyers will consider are profitability and growth rate. If you’re growing at a substantial pace, have long-term client contracts with notable logos, and have strong EBITDA margins, then there will be a higher tolerance for lower revenue.
For more information on how private equity investors and strategic acquirors are assessing companies like yours, find additional materials below:
- What Makes a Company Attractive To Investors?
- Partnering With Private Equity, What You Need to Know
- Ready to Merge? Signs That Your Company Cultures Align
Concerned about selling your company during COVID, check out our blog posts on the topic:
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