Be ready when the fever breaks

[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      

Don't miss the opportunity to sell during the next upturn

[Editor's note: The boom market for sellers may be over. Interest rates are climbing, the stock market is down. The good, experienced Investment bankers and M&A professionals tell us that unless you have a high-performing company in a highly desirable market, this is NOT the time to sell your business, as valuations continue to fall for companies other than those top performers. They advise companies to spend the time during 2022 and 2023 getting the company in the best shape so that you are ready for the next good M&A market in 2024 -2025.

Some folks believe we are already in a recession. If not yet, many economists expect the next downturn as early as 2023. 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]

 Don't miss the opportunity to sell during the next upturn

The full exit sales process may take several years. With credit markets tightening, the economy likely heading into recession, and uncertainty 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, 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 1-2 years to get ready, up to 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 a 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 may be a better supply of good talent available in the marketplace as the economy sours. In many cases, this may be talent that has not be available in better times. Take advantage of the opportunity to improve. This is also 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 streamline to increase throughput. That "excuse" typically does not apply during a 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 next 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!"

We can help. 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 60 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.