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Chris Andersen: When and Why to Sell: Should I Stay or Should I Go?

Other than a refrain from an early 80s popular song it is a topic that arises during our conversations with business owners every week.  This is the “When” of “When and Why to Sell”.  Assay Advisory can provide owners with an assessment of the value of their enterprise accompanied by our opinion regarding the market’s level of receptivity and ability to achieve the desired exit and price needed by the seller.

Our judgments often fall into three categories:

  1. The market for your business/industry is currently drawing a lot of attention with strong market valuations;
  2. Your company is growing and posting modest revenue and earnings growth and your industry is experiencing moderate M&A activity with “reasonable” valuations or
  3. Your industry is out of favor with acquirers/investors or a particular company is struggling to grow and can expect anemic valuations.

Now, time to answer the question with which we began this discussion – Should you stay or go?  Based on the outcomes listed in the preceding paragraph we propose one of the following strategic alternatives to our clients:

  1. (GO) Sell the entire company: appropriate for category “A” above to allow you to retire or move on to their next venture; or
  2. (STAY) Sell part of the company: ideal situation for category “A” and “B” to get partial liquidity now and continue to drive your business to the next level to reap a greater payday in the future; or
  3. (STAY) Acquire another company: suitable for any of the three categories to boost topline growth and improve earnings for the combined entities; or
  4. (STAY) Focus on organic growth: all companies can benefit from such a strategy, however, categories “B” and “C” have a more pressing need to assess core product/service offerings, realign the organization and better manage expenses to prepare to sell when the market improves for your industry. At a high level, they need to implement new revenue systems.

While Assay is in the business of buying and selling companies we invest a significant amount of time working with business owners to help them understand each of the strategies, fully comprehend the outcome for each alternative and then gather the resources to achieve their goals.

Why Do Business Owners Sell?

The specific declarations from business owners vary, however, most tend to cluster around a few themes. The most cited motivations are Burnout; Approached by Buyer; Diversification of Wealth; Other Venture; Reached Limit of Resources (Capital and/or Talent); Retirement and, of course, the much dreaded Triple-D: Death, Divorce or Disability.

Ant - Quit When Not Fun

As former CEOs and operating executives ourselves, each dealmaker at Assay knows there is a sense of pride about carrying the proverbial rock up the hill every day (just like the fellow in the nearby cartoon) … that is, until it becomes a burden and the excitement or passion for the business has waned.  That is when business owners consider how to gain a complete or partial exit from the business.  Whatever the reason for selling your business you also need to consider the legacy you want to create.  Yes, that’s right I said legacy.

Assay will spend a great deal of time with you, prior to executing an engagement letter, to outline your legacy based on two key factors that need to be carefully considered and clearly articulated:

  1. What do you need? This is the rational goal to understand how much money is required, on an after-tax basis, for you to accomplish your goals.
  2. What do you want? Three highly emotional issues are then addressed that create the true legacy for you as the business owner.
  3. Your role: You may desire to remain with the business as CEO to “take the business to the next level”; or you may want to be named Chairman so you can still be involved; perhaps you wish to limit your operating role to one facet of the business such as sales or product development; or, like many, you want to exit completely as quickly as practicable following the sale and orderly transition.
  4. What happens to your employees? Do you want to protect each and every employee with zero layoffs; do you recognize some reductions in the workforce are inevitable to improve the efficiency of the business or to take the opportunity to get rid of some of the “dead wood”; or, are you okay with are wholesale reductions-in-force to take advantage of synergies when merging with a larger entity (this often results in a very high valuation for the business as well)?
  5. What happens to the entity? The two outcomes here are whether the business remains an independent operating entity (or subsidiary) or the people, products/services, IP and other assets are simply absorbed by an acquirer with the original entity being dissolved.  Companies with little brand equity in their niche usually consider a sale to a larger, more successful enterprise to be highly beneficial for their customers and employees.

We encourage entrepreneurs to carefully deliberate the pros and cons of each of these various considerations.  This if often the most difficult part in the sale process as it forces you to be truly honest with yourself, to have discussions with your family and friends as well as consider the impact on partners and employees. Once the desired legacy is communicated to us, Assay designs an individualized transaction process that meets all of your goals.  Through experience, both as entrepreneurs and now as M&A advisors, we know addressing these issues before the transaction begins results in a smoother transaction with no surprises down the road.

Chris Andersen, Assay Advisory

Gil Roberts

groberts@assayadvisory.com