Contributed by John Hill, co-founder and managing partner, Hyde Park Capital
You have dedicated your whole life to building up your own company. You are proud of what you have accomplished and are looking for opportunities to maximize value. You might even dream of one day selling it to a private equity firm or a strategic buyer. With the many options out there, when is the right time to consider a sale?
Small and medium-sized privately held companies are the backbone of local economies. With more than thirty million of these businesses across the United States, plus with an aging ownership dynamic, many owners are now exploring mergers and acquisitions (M&A) as an exit strategy. A successful sell-side M&A strategy can monetize the value of the company, secure its legacies, address growth and senior management challenges, and in certain scenarios provide a way to mitigate financial risk from the business while still providing upside for a “second bite of the apple” in a subsequent transaction.
Though every business is different, there are recurring signs that it might be time to consider a sale. By recognizing these signals and preparing ahead of time, owners can set themselves up for success and a rewarding outcome.
Recognizing the Right Moment to Sell
Selling your company is a major decision and timing it right in connection with family or partner dynamics, the current economic and political environment, and the financial performance of your business, can all play a pivotal role in your success.
Family & Partner Dynamics
For many owners, selling goes far beyond financial consideration. It can be a deeply personal decision. Factors such as legacy, succession planning, risk management, asset management, and personal health matters can be important parts of the timing decision and process.
Factors that can lead to a decision to sell may include:
A general lack of interest or readiness among the next generation of current management or lack of interest or ability in the family or company, to take on the leadership role.
Burnout and perhaps boredom from your current role.
A desire to retire and focus on other priorities.
Life events, such as health challenges, or the need to diversify personal assets.
Differences in viewpoint and direction and challenging working relationship dynamics among partners.
Economic Policy & Market Factors
With the incoming administration’s anticipated pro-business policies, now may be an ideal time to consider selling your company. Factors such as lower interest rates, lower corporate tax rates, deregulation, and a general shift to stimulating the economy can contribute significantly to the timing of a successful sale.
A few examples include:
As the economy grows, so might your business. Enhanced financial performance and growth in the business, combined with rising valuations, could be driving factors in an owner’s decision to sell.
A lower interest rate environment makes debt capital utilized in LBOs and management buyouts less expensive and can result in higher purchase price multiples.
The M&A market is cyclical, and an upward shift in the overall macro M&A market typically leads to increased deal activity and higher prices paid by buyers, as their focus shifts from a mindset of mitigating downside risk to pursuing upside opportunities.
Many industries, such as healthcare and telecommunications, have benefited from deregulation efforts, potentially making it easier for business owners to consider an exit strategy.
Financial Performance
The financial performance of a business is often the most important factor influencing both the potential purchase price and the decision to sell. On the one hand, it is extremely beneficial to sell during your company’s peak financial performance, but on the other hand, it can also be wise to sell sooner than later if you are concerned about or anticipate any financial headwinds.
More instances to consider:
Record high profits with strong margins make it an optimal time to consider selling your business. Buyers are often more competitive and will often pay a higher multiple for better-performing businesses.
Increasing operational costs can make it appealing to transact with a strategic buyer or private equity firm to leverage their infrastructure, greater resources, and expertise.
If your industry is experiencing hardship such as emerging competitors, changing technology, or changing regulations, selling might be a proactive way to mitigate risks before there is a potential negative impact on your company’s financial performance.
Family and partner dynamics, economic market conditions, and financial performance can all play into the timing of a decision to sell your company. If timed well, the outcome and ability to optimize a sales price can be largely impacted by these factors.
When it’s time to consider selling your company, Hyde Park Capital (HPC) specializes in M&A services that help founders and family business owners weigh their options with clarity. We have guided many successful founders and family-owned companies through this critical decision and complicated sale process.
John Hill is the Co-Founder and Managing Partner of Hyde Park Capital and a career investment banker. He has executed hundreds of transactions totaling more than $10 billion in enterprise value, including sell-side and buy-side M&A, financial advisory engagements, initial and secondary public offerings, private placements of equity and debt securities, and fairness opinions. Among other things, John is a former Director and Chair of the Florida Venture Forum, Former Chair of the State of Florida Investment Advisory Council, and former board member of the Tampa Bay CEO Council. John holds a B.S. in Industrial Engineering from Virginia Tech and an MBA from UNC at Chapel Hill.
