[Editor’s Note: We are living in a period of record uncertainty and unpredictability. Tarrifs on, tariffs off ; supply cain disruption; higher interst rates. It remains to be seen if this disruption in the global economy will lead to recession, inflation, stagflation, or a return to a sound economy. Companies are paralyzed by the uncertainty; others are overwhelmed by the potential scale of the disruption.
The Middle Market M&A market has been stagnant for more than 18 months with very little activity. In 2024, we advised clients that were good, but not great performers, not to go to market, but rather to work on improving their companies to be ready for the next upturn in the M&A market. The stagnation in M&A activity has continued into the sixth month of 2025. Tremendous sums of capital are sitting on the sidelines. Investors desperately need to put capital to work. Many companies will need to sell to provide liquidity for aging business owners.
One thing is certain: The current level of uncertainty is unsustainable. The basic rule of Physics (and Economics) is that, after a "disturbance," things ultimately return to a state of equiliibrium. Many professionals believe that this will ultimately happen by the end of this year. dpm]
Be ready when the fever breaks
When the markets do return to normalcy, it will likely not be a slow move. The pent-up supply of companies and the pent-up supply of capital and demand for new transactions will likely result in a "gold rush" level of activity. Those companies that are best prepared will realize an unprecedented surge of interest from strategic and financial buyers. We are advising our clients to " Be prepared when the fever breaks." You may not be able to work on everything now, but work on the things you can so that your company can present in the best light.
How best to position your company to be attractive to buyers:
1. Demonstrate Strong Financial Performance
a. Historical Financials
b. Operating Cash Flow
* Focus on hitting projected revenue and earnings numbers
* Review net profitability of customers and products
2. Maintain "clean" financials
a. Audited or "auditable" Financial Statements
* Have your financial statements audited with a reputable firm to add credibility
* Use GAAP accounting. If not, identify how practices differ from GAAP
b. Income Statement Adjustments and "Add-backs"
* Buyers are skeptical of earnings that rely on substantial add-backs (one-time, non-recurring charges, private company expenses, etc.)
3. Diversify your customer & supplier base
* Diversification signifies a healthy business and reduces risk
* How stable are your top suppliers? How stable are their terms?
* Do you have multiple suppliers for critical components/services?
4. Develop a Strategic Growth Plan
* Maintain a clear strategy and be able to demonstrate your history of execution
* Be able to articulate specific future growth opportunities
* Position your company to take advantage of them
* Remember: A buyer needs to see a potential Return on Investment
5. Build a capable Management Team
* Invest in training and key strategic hires, if needed
* Focus on building a deep management team that can thrive without your continued leadership
6. Eliminate potential "Gotchas"(these are items that could result in significant discounts to value)
* Maintain legal documentation (licenses, regulatory filings, contracts, intellectual property, incorporation, etc.)
* Clear title to all assets
* Document processes and procedures
* Resolve legal disputes, environmental issues, etc.
7. Build a team of Qualified Advisors
* Minimize distractions from running your business effectively
* Get advice from professionals who have "done it before" and who have expertise in areas you do not
* Beware of advisors that outstep their areas of expertise and pretend to do it all
Are you and your company ready if a buyer appeared on the radar?
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.
We can help. The Mead Consulting Group has helped many clients prepare for successful sales transactions ranging from $10M 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. Contact me if you would like to discuss.
Best regards,
Dave Mead
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