Don't Miss the opportunity to sell during this upcycle

We missed the selling boom during the last positive cycle and were determined that we would not miss another opportunity.

In one of our Breakfast briefing series a few years ago, Dan McCallin former owner and CEO of Timberline Steel made an interesting statement: "We missed the selling boom during the last positive cycle and were determined that we would not miss another opportunity to sell during the next upcycle. We decided to take the steps so that we were prepared." While Dan originally made that statement during the recession of 2002, and later sold the business in early 2006, the message could certainly apply today. We are in the tenth year of this upcycle. We have all learned that economic cycles don't last forever.

The process for you to exit your company may take the better part of a decade. With interest rates still near record lows, the economy still in expansion mode, and sales multiples at high levels, there may be a tendency on the part of business owners to think that the good times will continue for the foreseeable future. While some business owners may believe they can pull the string when they are ready, the truth is, for many business owners, the exit sales cycle may take several years to execute. Professionals will tell you that in order to sell at highest value, the process includes 1-3 years to get ready, 1 year for the transaction, and then you may have to spend up to 3 years with the company after the sale.

Companies can focus on making fundamental improvements to their business that will help them make their company healthier and more attractive than their competitors.
1. Focus on customer net profitability
2. Upgrade management
3. Cleanup business processes
4. Develop a strategic growth and execution plan
5. Position the company to succeed in any part of the business cycle

Focus on customer net profitability. The tendency 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 grow as the economy improves.

Upgrade management.  While talent availability may be tightening, 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, many companies claim they are too busy to scrutinize business processes to make improvements and to streamline in order to increase throughput. That "excuse" can ultimately cost you when you try to sell.

Develop a strategic growth and execution plan. You need a plan that will allow you to be agile enough to take advantage of opportunities in the marketplace. There may be market segments that have been slow to come back; some may never come back the same way. Other market segments, however, may present huge new opportunities. Your organization needs to develop a plan and be prepared to execute.

Never waste the opportunity to improve. Take the opportunity to examine everything, reduce unnecessary expenses, trim those underperformers, examine unprofitable business, streamline business processes, etc. 

   

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 to succeed in any market. The market for selling a business will likely continue to be ripe through most of 2019. Those businesses that are prepared and ready are finding a hungry group of buyers and investors with lots of "dry powder" that they need to invest. 

The Mead Consulting Group has been helping middle market companies for over 30 years to add value and prepare for a successful transition. Our clients have consistently enjoyed better results. Investment bankers have told us that our clients are among the best prepared they have ever represented.

Why 2014-15 could be a great time to sell a lower middle market company

Why 2014-15 could be a great time to sell a 

lower middle market company

What is a lower middle market company?

Lower middle market is defined nationally as transactions between $10M and $250M in enterprise value.

  

When is a good time to sell?

CEOs and business owners routinely ask the question, When is the best time for me to sell? Is now a good time or should I wait? Truthfully, many of the folks that address that question (investment bankers, private equity professionals, financing sources) have a vested interest in having companies go to market. So business owners can be skeptical when reading optimistic projections. 

We have advised business owners for years that there are a number of factors to consider when evaluating if it is a good time to sell a business. The most important is to make sure your company is prepared, and to not wait for the "absolute best time" to sell, but to sell when the market is good. There are lots of examples of companies that have regretted not going to market in 2006-2007 because they thought the market for their company would be better in 2009 or 2010.

There are a number of factors that suggest that 2014-2015 is a terrific time for lower middle market company owners to sell.

  

1. Company results have rebounded or stabilized. Most lower middle market companies have rebounded or at least stabilized from the downturn. Even if revenue growth in some sectors is still very moderate, most companies have done an excellent job of managing expenses and increasing cash flow.

2.   Valuations are high. With stock market at record levels, the prices (multiples of EBIDA) being paid for good companies are at high levels.

3.  Interest rates are still low.This is important since the buyer of your business need to borrow for the transaction.

4.  Private equity firms have plenty of dry powder and fewer distractions from older investments. Many private equity firms spent the year in 2013 selling their portfolio companies. They now have lots of capital to invest and need to put that capital to work by buying companies. They also can focus most of their attention on looking for new opportunities.

5. Private Equity has an increased focus on lower middle market transactions. According to a recent survey  of 1000 dealmakers conducted by KPMG and Merger & Acquisitions magazine, a whopping 77% of respondents expect most of the M&A activity to fall in the lower middle market space

6. Strategic buyers still have lots of cash. Strategic buyers have been accumulating cash in record amounts as they have emerged from the downturn lean and more productive.

7.  Strategic buyers need to find new ways to grow. Sources of organic (internal) revenue growth have been difficult for most strategics. They are under pressure to acquire companies that add new products, new customers, new geographies, and new capabilities.

8. There are still more buyers than sellers in the market. The number of baby boomer business owners who are reaching retirement age is increasing daily. There will come a time when these business owners need to sell and there may well be a glut of businesses on the market. This has not happened yet. By 2016, there may be as many as 1.5 million business owners who need to sell to provide liquidity for retirement - even adjusted for new retirement expectations that changed during the recent downturn.

Are you and your company ready to go to market?

Most business owners who have executed a successful sale of their business will tell you the most important thing is: BE PREPARED.

Selling a business is very different than operating a business. As a business owner you know your industry, your product or service, your customers and your markets. Most business owners will only sell a business once in their lifetimes - and it can be by far the most important financial transaction of their lifetime.

If you would like to perform a free Self Assessment of your company's readiness to maximize value in a sales or recapitalization transaction, 

 click here (go to the bottom of the page and download the self assessment).

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The Mead Consulting Group has helped over 50 clients prepare for successful sales transactions ranging from $15M to $350M in transaction value. We help companies increase the value of their businesses leading up to a transaction, minimize the things that cause potential buyers to discount the price, prepare to best position the company, and assist the owners in building a  transaction team.

What successful business owners say about us:

 ...We could not have completed the sale of our business without the advice and guidance of The Mead Consulting Group. Their experience was critical in helping us prepare, and endure, the transaction process to a successful outcome. ...Charles M, President, Healthcare IT Company

A successful process is draining and stressful.  The Mead Consulting Group brought the experience and expertise necessary to help our team focus on the critical issues and not get caught up in the multitude of items that can derail a transaction.  Why reinvent the wheel?  We chose to take advantage of individuals who could help us understand the nuances, negotiate effectively, and close the deal. ...  CEO, Behavioral Healthcare

...We missed the opportunity to sell our family business during the last upcycle. Mead Consulting helped us grow revenue and EBITDA to record levels and guided us through the selection of a transaction team. Dave Mead and his group provided great counsel throughout the sales process, removing obstacles and firmly encouraging us to a great deal with a strategic buyer that mirrored our family business values. ...Dan M, President, Building Products Company

...I do not know why anyone would attempt to sell their business without Mead Consulting. Since they have owned and sold their own businesses, they understand the challenges of continuing to run the business while trying to sell it. Their experience kept us focused on the right things and they helped keep our transaction team well-aligned during the process. They truly act as the advocate for the CEO and owner, helping to make sure that it was the best deal for the owner. ...Ron T, CEO, Software Business

Common Misconceptions about selling a business

It appears that we are entering the next big surge in business transition activity fueled by the retirement needs of aging baby boomers. The first baby boomers turned 67 years of age in 2012 and we are beginning to enter the years with greatest numbers of boomers. We estimated that in 2012, based on slow activity in 2008-2011, there were between 1.2 -1.5 Million boomers (with businesses between $2M and $80M in revenue) who would need to sell to provide liquidity for retirement.

If you are a business owner contemplating a sale somewhere in your future, consider these common misconceptions about selling your business.

 I know the buyer – they are in my industry

Many business owners think they already know the prospective buyers – from their industry.  However, in many cases where a sales process is conducted by an investment banker, an “outlier” (either a strategic or financial buyer) surfaces with an offer significantly higher than from those you may know. Many times these come from outside your industry.

The market will be better next year

Procrastination can cost you. Sellers in 1999 or 2007 will tell you that they wished they had sold while the market was hot.

I don’t want to sell until I have to (Dismal D’s)

You want to sell when your business is healthy and when you don’t have to sell. Life can take cruel twists and turns. Business owners without a plan can find themselves subject to the “Dismal D’s” – Death, Disability, Divorce, Dissenting Owners, Declining market, Debt overload, or just pure burnout. It is hard work to sell your business. You’ll need plenty of energy and motivation to maintain performance during the sales process.

The investment banker or M and A firm will build value.

No they won’t – that’s not their job! A good investment banker can help you yield value, attract a broader market of potential buyers and get a deal closed, but they don’t have the skills or background to build value.  Some small M and A firms will offer services and advice in order to get your transactional business, but these are either very young, inexperienced associates or people who have not really run a business. They are very good at selling your business, but what they don’t know can hurt you.

My lawyer (or CPA) (or Wealth Manager) will help me find a buyer

Finding a buyer is very different than finding the best buyer, the right buyer.  Investment bankers do this every day. Most professionals understand what they do well….and what they don’t.  Find the right tool for the job!

I met a guy in my CEO peer group /My investors know a banking firm

Selling your business may be your most important business decision. Get help in making an informed decision about selecting an investment banker or other professionals. Learn about possible (but undisclosed) conflicts of interest, differences between firms, level of expertise that will work on your company, etc.  Have you checked with previous clients that were both successful and unsuccessful? Mead Consulting clients use a checklist of questions to help our clients make the appropriate choice.

It only takes 6-12 months to exit a business

Nothing could be further from the truth. In order to realize the maximum value it may take you 1-2 years to prepare the business, 12 months to do the transaction, and then you may have to remain for 3 more years with the company after the sale. Rushing a company to market without proper preparation will cost you as buyers will discount values for companies without an adequate strategic growth plan, strong management, or a clean review of due diligence issues.

Selling will only take some of my time

The biggest mistake business owners can make is to allow business performance to slip during a sales process. The primary reason for deals to either fall apart - or become heavily discounted - is because of deterioration of revenue and earnings. Business owners can dramatically underestimate the amount of time and energy it will take to both sell the business and maintain performance during the process.

The Mead Consulting Group helps business owners navigate through a successful sales process, including preparation, selection of the team (investment bankers, transaction attorneys, tax counsel, etc.), and the sale process itself. We focus on maximizing value and leverage the business owner's and management's time so that they can focus on maintaining business performance. Contact us for more information.