Common Concerns About Selling A Company

December 2013       Download PDF      Print

As 2014 approaches, business owners are contemplating goals for the new year. Many owners are nearing retirement age and hope to exit by selling their companies. If you are considering a sale, you may have concerns about the sale process and wonder whether it's the right time to sell. In the article below, we address some of these concerns and explain why 2014 may be an ideal time for some owners to sell their companies.

Business owners share concerns about selling

Last year, RBS Citizens, a $120 billion commercial bank, surveyed more than 300 middle-market business owners and executives about their M&A objectives for 2013. The study showed that nearly 40% of owners would consider selling their companies and it also explained reasons why other owners may be hesitant. Below are the top concerns that owners have about selling their companies.[1]

Top Concerns About Selling A Company
41% Being underpaid/undervalued by acquiring firm
33% Losing key employees during/after acquisition
31% Altering clients' perceptions of quality, service, etc.
27% Losing control/ability to make decisions
26% Merging different corporate cultures
22% Meeting stated target revenue or growth goals prior to acquisition

Timing and preparation are essential

The success of an M&A transaction depends heavily on preparation. To overcome the concerns listed above, business owners should start preparing their companies for sale well in advance. Preparing early will allow you to organize company records, develop a plan to minimize taxes, and focus on improvements that make your company more appealing to buyers. Preparation will also allow you to learn more about the M&A process, develop realistic price expectations, and research potential buyers.

Preparation will certainly help you secure a higher price for your company, but in order to receive maximum value, the timing must also be right. Whether the time is right to sell will depend on your company's financial performance, industry trends, and a variety of macroeconomic factors. As such, it is important to understand the current and future macroeconomic environment as it pertains to M&A.

M&A was slower than expected in 2013

Experts expected a significant increase in middle-market M&A activity in 2013 because market conditions were favorable for both buyers and sellers. As U.S. companies recovered from the recession, many corporations accumulated historically high amounts of cash on their balance sheets. Lower interest rates and enhanced credit availability also gave buyers the ability to pay more for companies.

Despite these favorable conditions, many buyers and sellers remained inactive due to uncertainty surrounding U.S. fiscal policy and slow economic growth. As a result, middle-market M&A activity in the U.S. declined by approximately 20% between 2012 and 2013.[2] However, a recent study conducted by professional services firm Ernst & Young (E&Y) shows that buyers are becoming more confident in the U.S. economy, meaning M&A activity could rebound in the near future. Out of 1,600 senior executives surveyed for the study, 94% believe that the economy either stabilized or improved over the past 12 months, while 10% fewer respondents felt the same way one year ago.[3] The increase in buyer confidence may already explain a 16.9% increase in middle market M&A deal volume between Q2 and Q3 2013.[4]

Key Figures: October 2012 October 2013
Middle-Market M&A Deal Volume: 1,286 YTD 1,022 YTD
Positive Economic Outlook: 84% 94%

What to expect for M&A in 2014

M&A activity has heated up over the second half of 2013 and we believe this momentum will carry forward into the new year. While buyer confidence improves and market conditions remain favorable for M&A activity, companies and private equity firms will begin investing in new growth initiatives.

Although the economy has grown over the past several years, the growth rate has declined, making it difficult for companies to grow organically (for example, by expanding their customer base or increasing sales). To provide shareholders with the returns they demand, many companies will turn to inorganic growth methods such as mergers and acquisitions in order to increase revenues and improve operational efficiencies. With large amounts of cash on hand and loosening credit markets, more buyers will be able to pursue strategic acquisitions and pay more for companies.

E&Y's study shows that 65% of U.S. companies are sharpening their focus on growth initiatives over the next 12 months and that many are planning to expand through acquisitions. This past October, 41% of U.S. companies said they plan to acquire a company in the upcoming year; in contrast, only 23% were planning acquisitions for the upcoming year as of October 2012.[3]

Key Figures: October 2012 October 2013
Focused Mainly on Growth: 46% 65%
Planning To Acquire This Year: 23% 41%

Sellers have a great opportunity next year

The best way for a seller to maximize the sale price of his company is to draw interest from multiple buyers and create a competitive bidding environment. As we enter 2014, buyer confidence is increasing and companies are focusing more on growth. With a growing appetite for acquisitions and the means to make deals happen, the level of buyer activity should increase over the upcoming year. As a result, owners who embark on an organized sale process will have a better chance of attracting interest from an expanding pool of buyers.

[1] RBS Citizens, Middle Market M&A Outlook 2013
[2] Capital IQ
[3] Ernst & Young, U.S. Capital Confidence Barometer, 9th edition, October 2013
[4] Deloitte, Middle Market M&A News, December 2013

Contact Us

  • If you have any questions about selling your company in 2014, please contact:

    David Holzman, CFA
    President
    david@alliedbizgroup.com