By: Wesley Legg
Private equity funds have raised over $760B since 2012 and have $500B in dry powder for private company buyouts. Because of the proliferation of private equity funds loaded with cash and all competing with one another to put money to work in private companies, middle-market business owners are getting more and more solicitations asking whether or not they would be interested in selling their business. This is great news for quality middle-market companies, because this increased demand is allowing those companies to achieve premium valuations in a sale when they run a competitive process. However, just because someone is showing interest in buying your business doesn’t mean it’s a good time to sell or that you’ve got a serious and/or the right buyer at the table. For that reason, business owners tell us they mostly ignore these “buyer” overtures; that, and they don’t know who’s on other end of the phone or their angle.
Solicitations from private equity buyers, however, can be a good catalyst to thinking about an owners exit plan, raising questions like, “What is my business worth?”, “When would I sell my business?”, or “What are the ramifications of selling my business?”. These questions, lead to more questions and create a very healthy exercise for any business owner. Answering the question “What is my company worth?” gets owners focused more on the enterprise value, providing a greater understanding of how to increase their company’s value. This is not only helpful in a sale, but also leads to a more well run and more profitable company. Asking “When should I sell my company?” gets owners focused on understanding and monitoring both the internal and external factors that should be considered when timing a transaction. A few of those factors include age and energy of the business owner, business performance, the maturity and current state of the industry in which the company operates, the overall credit markets, and the competitive landscape. And finally, “What are the ramifications of selling my business?” is a question that gets owners thinking about how a sell might impact them personally, their family, their employees, and their community.
Selling a business should not be done on a whim or as a knee jerk reaction. Most business owners get one shot to sell their company and capitalize on the value they’ve created. Thinking about what an exit might look like leads to good planning, and good planning leads to a successful exit from all angles and perspectives. Keeping the end in mind is a great life principle. That principle can lead to living a more abundant life and having a longstanding positive impact. In the same way, an owner thinking about their exit can make for a more prosperous company and a satisfying end to an important chapter.
The professionals at Founders have seen hundreds of exits, and with them, the good, bad and the ugly. Our passion is to see owners increase the value of their company and achieve liquidity through a successful partial or full exit. Our experiences have led us to firmly believe in planning for a transaction well before the time comes to do a transaction. For more information on how to begin to think about exit planning and transaction timing, see the continuation of the blog series, which takes each of the questions above and provide a framework for out to think about valuation, transaction timing, and post-transaction impact.