[Editor’s Note: The M&A market for lower middle market and middle market companies (under $250M in revenue) has been relatively stagnant for the past two years. With professionals expecting two to three rate cuts this year, plus the enormous amount of capital on the sidelines (both private equity and strategic), late 2026 and 2027 look very promising for well-prepared companies looking to go to market. -dpm]
The exit sales process may take longer than you think. With credit
markets still tight and many buyers sitting on the sidelines, it may seem
counter-intuitive to be writing about preparing your company to be ready to
sell. However, there are record levels of capital, sitting as dry powder, and
interest rates are coming down. Many professionals believe the next major sales
cycle will begin during 2026 and extend through 2027.
While some business owners may believe they can pull the
string when they are ready to sell, the truth is, for many business owners, the
exit sales cycle may take several years to execute. In order to sell at highest
value, the process includes time to get ready, 1 year for the transaction, and
then you may have to spend 3 years or more with the company after the sale.
Much of the preparation can be accomplished in advance.
Companies can focus on making fundamental improvements to their business that
will help them be healthier and more prepared than their competitors.
1. Focus on customer net profitability
2. Upgrade management
3. Cleanup business processes
4. Develop a strategic growth and execution plan
Focus on customer net profitability. The tendency for
many business owners is to cling to any customers and revenue no matter the
profitability level. A common comment is that “at least they absorb overhead.”
The notion of unprofitable business absorbing overhead may be one of the
greatest false beliefs in business. In many cases, overhead that has been
viewed as fixed is really a cost that can be minimized or shed. Carrying
unprofitable business will be a continuing cash drain that may inhibit your
business’ ability to continue to grow. Additionally, removing unprofitable business
adds to your EBITDA.
Upgrade management. While velocity is slow in the
labor market today, there is a great supply of good talent stuck in their
current companies. In many cases this may be talent that would not be available
in better times. Take advantage of the opportunity to improve. Similarly, this
is a great opportunity to review all of your employees and weed out those with
below average performance, poor potential, or unrealized potential. Our clients
use a simple tool to rank all employees in terms of potential and performance –
the results make it very clear which ones have been a drag on the company.
Cleanup business processes. During boom times,
some companies claim they are too busy to scrutinize business
processes, to make improvements, and to streamline workflow in order to
increase throughput. That “excuse” leads to suboptimal performance.
Develop a strategic growth and execution plan. You need a plan
that will allow you to be agile enough to take advantage of opportunities and
will be attractive to a prospective buyer.
Take a lesson from the Boy Scouts: Be prepared. These steps can
add value to your business. Your business can accelerate faster and be well-
positioned. Well-prepared businesses are always more attractive and sell first as
the market heats up. Those businesses will find a hungry group of buyers and
investors who have been sitting on their hands during 2023, 2024, and 2025.
____________________
The
Mead Consulting Group helps dozens of companies and
organizations -like yours - every year with both strategic planning &
execution, strategic business coaching, and preparing to maximize value in an
exit. Clients that utilize these processes consistently outperform their
competition.
If you would like to discuss your situation, please
contact me to set up a complimentary meeting. Dave Mead at (303)660-8135
or meaddp@meadconsultinggroup.com.
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