Exit Timing (August 2012)

Companies are sold for a variety of reasons.   The driving issue can be strategic fit, capital needs, succession planning (especially in the case of family held businesses), duration (in the case of private equity firms) or others.   
Regardless of the reason, however, for businesses that have reached some level of maturity (i.e., other than high growth businesses that need capital to grow the company) the best way to maximize value is to have a company that you do nothave to sell.  When a company is forced to sell, they often have few alternatives and will be lucky to find one potential buyer if they can get a deal done at all.   In these situations, the golden rule prevails (he who has the gold rules).  The seller is likely to end up with a “take it or leave it” offer and with no other choices will likely “take it”.  

On the other hand, when a company is strong there may be multiple potential buyers.   Some may see a strategic fit, some may see substantial operating synergies, while some others may be purely financial buyers seeking to acquire the company for its strong operating cash flows.   In cases such as these, a seller will likely be able to generate interest from a handful of potential buyers and create a bidding war for the company.   The result will be a much higher transaction price than what could be obtained in the absence of competition.    

So, how does one arrive in such an enviable situation that there are multiple potential buyers clamoring for the same business.   The answer is that one has to build a business that has real value.  That may be intellectual property, strong distribution, a particularly strong product line-up, real or perceived barriers to entry, or strong EBITDA and cash flow.   Most likely, the business has more than one of these characteristics.  When businesses have one or more key value propositions, they have options when it comes to exit timing.    

Too often, businesses, especially small businesses, are looking to sell at a time when they are weak.   For one reason or another (usually cash flow or lack thereof, they have to sell).  I have literally sat across the table from sellers like this and while they try to argue for higher value, an astute buyer knows that they are in control.   They will put just enough on the table to get a deal done.  Not a penny more.   

There are some who argue that the sale of a business is something that should be planned three to five years in advance.  If you are running a business that doesn’t have one of more of the value propositions mentioned above, that is certainly true.  You will need time to develop value in the business.  If, on the other hand, the business has been run from day one with an eye toward value creation, then I would argue that the business is always in shape for a transaction.    

Run your business in order to create lasting value.  That puts you in control when the time comes to sell your business (whether you initiate the sale or the opportunity of a lifetime comes your way).   A business of lasting value gives you options.  And options are always valuable. 
If your business could benefit from fractional CFO services, I would welcome the chance to speak with you.  Please give me a call at (314) 863-6637 or send an email to     For more information, visit www.homza.com

your cash is flowing.  know where.®    

Ken Homza   
Copyright @ 2012 Homza Consulting, Inc.


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