Don't miss another opportunity to sell during the upturn

[Editor's note:  In April 2009, we published this article. Many business owners had missed the window of opportunity to sell during the 2003 -2007 window when selling price multiples were at all-time highs. In 2014-15, we again have market dynamics that mirror 2006-7 - selling price multiples are again at high levels. It is a sellers' market with far more buyers than sellers. How long will this cycle last? . Many economists expect the next downturn as early as 2017. No one knows for sure. However, there is one thing for sure - if you missed the favorable opportunity to sell once, do not let it happen again.       -DPM]

Dan McCallin, former owner and CEO of Commerce City-based Timberline Steel recently made an interesting statement about his company: "We missed the selling boom of the late 1990's 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 While Dan originally made that statement during the recession of 2002, and later sold the business in early 2006, it could certainly apply today. 

The full exit sales process may take several years.  With credit markets tight, the economy in recession, and bad news seemingly everywhere, it may seem counter-intuitive to be writing about preparing your company to be ready to sell during the next economic upturn. While some business owners may believe they can pull the string when they are ready, the truth is, for many business owners, it may be exit sales cycle may take several years to execute. Professionals will tell you that in order to sell at highest value, the process includes 1-2 years to get ready, 1 year for the transaction, and then you may have to spend another 3+ years with the company after the sale.

Much of the preparation can be accomplished during the down cycle. Companies can focus on making fundamental improvements to their business during the downturn that will help them emerge faster and healthier 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 for the upturn
6.    Never waste the opportunity of a good downturn

Customer net profitability.
The tendency during a downturn 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.
There is a great supply of good talent now available in the marketplace. 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, many companies claim they are too busy to scrutinize business processes to make improvements and to streamline in order to increase throughput. That "excuse" typically does not apply during the downturn.

Develop a strategic growth and execution plan. You need a plan not only to help you survive the downturn, but also that will allow you to be agile enough to take advantage of opportunities in the recovering marketplace. There may be market segments that will be 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.

Position your company for the upturn.
The most significant competitive gains are made during a downturn. Companies that are prepared and well-positioned can accelerate very quickly as he markets healthy. Competitors that are under stress during the downturn will actually be under greater stress as the economy improves. Cash demands can be low when demand is low. Cash needs, however, will increase as the economy improves. Companies will need cash to hire more people, invest in inventory and equipment, etc. 

Never waste the opportunity of a good downturn
During downturns, companies have the opportunity to examine everything, reduce unnecessary expenses, trim those under-performers, examine unprofitable business, streamline business processes, etc. 

Take a lesson from the Boy Scouts: Be prepared.
These steps can add value to your business - even during a downturn. When the economy improves, your business can accelerate faster and be well- positioned. The market for selling a business will be ripe in late 2010 and 2011. Those businesses that are ready will find a hungry group of buyers and investors who have been sitting on their hands during the recession.
_______________________ 
What's the old saying - "Miss your chance once, it's a shame; Miss twice, shame on you!"

If you have not yet prepared your company ready for sale, we can help. The Mead Consulting Group has been helping companies prepare to maximize value for exit for many years. We have helped over 50 client companies successfully sell outright or recapitalize their business to take "chips off the table." See what some clients have said about their experience with Mead Consulting.

Selling your company? How to prevent your sales transaction from falling apart

Selling your company? How to prevent your sales transaction from falling apart? 

Chances are, if you are a business owner, you have never tried to sell a business. Most business owners sell their business only once. However, those who are in the merger and acquisitions business know the answer to this question - everyone has had a transaction fall apart. Sometimes it's for good reason. But many times, a delayed, discounted, or dead transaction is very preventable with better seller preparation.

Has any of the following happened to your transactions?

1.        Unrealistic (or changing) seller expectations of valuation. Many times sellers do not have an understanding of how valuations are determined. Some look at sales of public companies many times larger than their company; others may receive information from a peer in a different industry; yet others look at revenue without consideration to EBITDA. A few are “sold” by representatives that promise them high valuations in order to secure their business. Going into a transaction with an unrealistic expectation of valuation is a recipe for disappointment, equivocation, and failure.

2.     Cold feet - Seller, especially business owner, is not emotionally prepared to sell. Having sold a number of businesses,    including being involved with six that I either started or ran, I understand how difficult a decision to sell can be. You’ve built this business, struggled and toiled alongside loyal employees, investors, and managers – spent more time on the business than with your family. And now, the decision to sell? Many business owners do not have a post-sale plan and can be very apprehensive about “what’s next?” It is not unusual for a business owner who is not emotionally prepared to sell, to change his or her mind in the middle – or towards the end – of the sales process, incurring significant costs, stress, and ill-will.

3.       Selling company's performance deteriorates during the sales process. Without a doubt, performance erosion during the sales process is the single greatest reason for price adjustments (discounts) or deals falling apart. As a CEO or business owner, selling your business is like adding another full-time job. First-time seller business owners always underestimate the time and energy required to both sell the business as well as maintain the performance “promised” to prospective buyers in your plan.

4.       "Stuff happens" - Surprises show up during due diligence. Many business owners have developed customer and supplier relationships on a handshake or fairly informally. While these relationships may have existed for years, you can’t sell a business without documentation. Sales and supplier contracts must be in place, Intellectual property protected, key employees retained, shareholder and legal entity information buttoned-up, etc. Surprises that show up during the process can cause – at best- large amounts of the seller proceeds to be placed in escrow. At worst, due diligence surprises result in price discounts, or in the buyer deciding to walk away.

5.       Failure to demonstrate a meaningful strategic growth opportunity to the buyer. Buyers are buying an opportunity to get a return on their investment. They are interested in the future, less about your past. You need to develop and paint a compelling story about the future. A thorough understanding of the opportunities, strategies, possible competitive responses, risks, actions, etc., provide a buyer with enthusiasm about the likelihood of a successful investment.

The business owner seller, while very knowledgeable about their business, has little experience in selling a business. As mentioned, for most sellers, it may occur only once in their lifetimes. As a result, they have a lack of understanding of roles, motives, and behavior of the parties involved with a transaction.

Seller's Advocate.  Mead Consulting performs a role with our clients - as the business owner seller's advocate. Our senior consultants have been through dozens and dozens of transactions as both buyers and sellers. We understand the stress involved for the seller. We help clients prepare for the process by working with them in advance to add value by increasing Revenue and EBITDA, strengthening management, working on pre-due diligence, and developing a compelling strategic growth story. Additionally, we walk the business owner through the process, educating them about various aspects of the transaction and the roles of the players, so that there are fewer surprises for them. We assist them in the selection of the appropriate team for their transaction - investment bankers, lawyers, accountants (especially tax). During the sales process we support the transaction team, leveraging the business owner's time, and making certain that key milestones and steps are completed. We keep the business owner and the management team focused on maintaining company performance. When unexpected issues arise during negotiations, we can be a trusted bridge with the business owners helping them see solutions rather than obstacles.

 Better advisors refer Mead Consulting to prospective sellers as a Seller's Advocate. The better lawyers, accountants, banks and investment banking professionals see the value that a Seller's Advocate can have to make certain that a deal does not fall apart and the seller maximizes value.

Since many business owners may be unfamiliar with a Seller’s Advocate…..See what Business owner sellers say about Mead Consulting in a Seller's Advocate role.

...We really underestimated what the sales process would be like. Mead Consulting worked with us to prepare the company, helped us with our planning and due diligence, management presentation, coached us with presenting, and helped us navigate throughout the process. ...Steve F, CEO, Financial Services Company

...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

...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

 ...Thank you to you and your team for helping us. You have that unique ability to challenge people without coming across as judgmental or critical, and you forced us to look at things differently. We would not have been able to get to the next level without your help...Mike M, President,  Business Services company

...I do not know why anyone would attempt to sell their business without Mead Consulting. 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. Making sure that it was the best deal for me. ...Ron T, CEO, Software Business

For more information on our experience and services, please contact Dave Mead at (303) 660-8135 or meaddp@meadconsultinggroup.com

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.   

Colorado success stories: GolfTEC

Changes in strategic focus help GolfTEC thrive and grow

By David P. Mead

Editor's note: This is the second in a series of Colorado company success stories as told by CEOs and business owners that we are writing for ColoradoBiz Magazine. We are interviewing clients and friends whose companies have thrived during the economic recession through disruptive innovation, new business models or superior execution. (This article was originally published in ColoradoBiz on Feb 7th)

Recently I sat down with Joe Assell, co-founder and CEO of GolfTEC to review the strategies and approaches that the company has taken to reach its current level of success.

Mead: How did you decide to get into the business?

Assell: I was a golf pro and in 1994-95, co-founders Mike Clinton, Clayton Cole and I could see new technologies emerging (PC’s, the internet, etc.). Golf lessons essentially had been conducted the same way by golf professionals for years. We decided to find a better way to give a golf lesson, utilizing technology. In 1995 we opened our first location - as an experiment. It booked quickly and we added a second location.

Mead: What is your differentiation?

Assell: We have capitalized on a “first to market” advantage. We offer proprietary software platforms: g- SWING where we match your swing to our database which includes the motions of 150 top tour players. So the lesson is based on facts and data about your swing, rather than opinion; CaddyMaster (our ERP system) provides business intelligence about customers, location performance, on-line scheduling. It allows us to run golf instruction as a sophisticated business.

Mead: Has the growth path always been smooth?

Assell: In 1997-98 technology was “hot” and we were talking to venture capitalists. To please them, we “foolishly” started trying to become a tech company and developed technology to deliver lessons over the internet and added expensive, experienced management. When the tech bubble burst, we could not get investors, and had to reverse direction and retool back to our original profitable model – but not until we had burned through $3 Million in capital. We were very close to the edge – within 1-2 months of folding. We were able to secure a bridge loan which saved us.

Mead: Weren’t there some good things that came from this expensive lesson?

Assell: Yes, we had the technology which has become a key to our success. Also, three things happened, starting in 2001.Gart Capital Partners invested in GolfTEC. They had a fabulous history of success in sports retail and helped us stabilize the business. We also started partnering with GolfSmith (we are now co-located in 56 of their stores). Third, we started franchising. Over the next five years, we had steady consistent growth - from 18 locations to 140 locations.

Mead: Joe, how did the current recession impact your business?

Assell: We are in the retail and recreation business and we could see that retail was taking a big hit, especially specialty and luxury retail. Some retailers were reporting 35% to 50% reductions in sales. We put a strategic plan in place to respond to these dynamics. Our team did a terrific job. We were fortunate that even in our worst period (Sept ’08 through August ’09), our sales were down only 7.7%.

Mead: What are some of the actions and new programs you took to sustain growth?

Assell: First, we adjusted our strategy to focus on equipment sales. Our IT team developed proprietary club-fitting software and we partnered with Golf Magazine and Golf.com. Second, we started offering monthly payment plans that spread the annual cost of lessons and helped our customers manage their cash flow. It was amazing that 18% of our customers adopted these plans. Third, we rewarded our loyal customers by offering discounts for renewals. We offered two different months during the year when renewing customers could sign on for another year at discounted rates. Not only did this build great goodwill, but these two months have become GolfTEC's two largest cash sales months. Our results have continued to steadily improve. In 2010, our business was up 15% over 2009.

Mead: What are the keys to continued growth over the next 5-10 years?

Assell: There is significant opportunity for growth, both in same location sales as well as new locations. The “TEC” in GolfTEC stands for Technique, Equipment, Conditioning. In technique (golf lessons), we are number one on the world. In equipment, we started focusing more attention. Our equipment sales were up 70% in 2010 and there is plenty of room for growth. Conditioning is a great opportunity and one that we really haven’t touched yet. As far as the market is concerned, we see the global market as having capacity for 750 GolfTEC locations and we are currently at 145 so we are only at about 20% penetration. We still have a long way to grow!