Protecting & Building Company Value

Part IV: Maximizing The Value Of Your Company Through A Sale

September 2013       Download PDF      Print

After investing countless hours and a significant portion of your personal wealth into building the value of your company, you will surely want to reap the benefits of all your hard work. Like many business owners, you may decide to sell your company as an exit strategy. Many owners underestimate the challenges associated with selling a company and embark on the sale process without sufficient preparation. As a result, they leave money on the table, selling their companies for much less than maximum value.

To realize the best possible return on your investment, start planning for the sale process several years in advance. As you develop your exit strategy, address the questions below to maximize your proceeds from a sale.

Who should I sell my company to?

Prospective buyers in M&A transactions fall into two categories: strategic buyers and financial buyers. A strategic buyer is typically a private or public company that is seeking to grow by acquiring a company. Strategic buyers usually pursue investments that will allow them to diversify their product offering or customer base, extend their geographic reach, or create operational efficiency. These buyers hope to realize synergies in the form of cost savings and/or increased incremental revenue. As such, strategic buyers are often willing to pay a premium for the right company.

Financial buyers, such as private equity groups, typically invest in a company with the goal of building its value and eventually reselling it to realize a return. Many private equity groups prefer to acquire a partial stake in a company and partner with its current shareholders to help manage and grow the company. Such a transaction, often referred to as a recapitalization, can allow you to take some of your personal wealth out of your company while your new partner provides financial resources and management expertise to lead growth initiatives. Once your company has increased in value, you may have the opportunity to sell your remaining interest. Often, this allows owners to receive a higher overall price than if they had originally sold 100% of their company.

To many owners, value is often about more than just the price they receive at closing. Some owners place significant value on the preservation of their legacy and the company's culture, and many hope to find a buyer who will retain their existing employees. Understanding the intentions of prospective buyers will allow you to identify those who may offer the best overall value.

What terms should I accept from a buyer?

Many sellers make the mistake of focusing too much on purchase price and not enough on negotiable terms, deal structure, and net proceeds after taxes. Owners can maximize the total value of their transaction by remaining flexible and understanding their options. Ultimately, you will need to evaluate offers from prospective buyers by weighing the risk/reward factors of any contingent payments and by carefully considering how the structure of a proposed deal will impact your tax liability.

By planning early, owners can implement a strategy that will allow them to minimize or defer their tax liability and take advantage of significant savings. With proper tax planning, you'll have a better chance of meeting your financial objectives through a sale.

When should I sell?

Timing the sale of your company can be a challenge, but choosing the right time to sell can help you achieve a higher value for your company. Variables such as your company's financial performance, the current lending environment, economic conditions, and industry outlook will affect how much a buyer is willing to pay for your company.

It is best to sell when the economy is on an uptick and when your company has demonstrated strong financial performance. In a strong economic environment, credit is also easier to obtain for buyers. As a result, buyers will be able to leverage more debt and pay more for your company.

If you operate in a growing industry there will a higher demand for companies such as yours. Or, if your industry is undergoing a consolidation phase, larger competitors may be willing to acquire your company at a premium. Selling during such periods will allow you to solicit more interest from prospective buyers.

Occasionally, a prospective buyer will make an unsolicited offer to purchase a company from its owner. If the offer is reasonable, the opportunity may be worth exploring with the assistance of an experienced M&A advisor. Preparing well in advance of your eventual exit may allow you to take advantage of timely M&A market conditions or unexpected offers while still achieving maximum value.

How should I sell my company?

Business owners should assemble a team of professional advisors, sometimes referred to as their "deal team" before embarking on the sale process. Your advisors, including an M&A advisor, attorney, accountant, and financial advisor, can provide guidance on a multitude of issues and offer support during negotiations with prospective buyers. In particular, an M&A advisor can help you execute the sale of your company by implementing a process that is customized to your personal and financial objectives.

Experienced M&A advisors can develop a strategy that will draw interest in your company from multiple strategic and financial buyers, while keeping the sale process strictly confidential. Owners can achieve higher values when there is healthy competition among interested buyers. When financial and strategic buyers bid for your company in a competitive arena, the purchase price of your company will increase.

An M&A advisor can also manage correspondence with interested parties, coordinate the exchange of large amounts of sensitive company data, and engage each prospective buyer to maintain their interest in your company. Ultimately, your M&A advisor will help you evaluate offers from various buyers, negotiate a purchase price, and structure deal terms that will allow you to meet your financial objectives.

Getting started

As a business owner, you spend a substantial amount of time, money, and effort building your company to provide yourself and your family with financial stability. Even if you aren't ready to sell your business, there are many reasons to consider potential exit strategies now as you develop your company's long-term growth plan.

It's easy for an owner to become so distracted by the daily demands of running a business that they fail to plan how they will eventually transition out of their company. Consequently, many owners begin their exit planning far too late and find themselves unable to achieve their financial objectives or retire comfortably. By planning early and considering the advice above, you can ensure that your company is primed to sell for maximum value and that you can achieve your financial goals.