Guest Blog by Ann Hanna, Managing Director and Owner; Taureau Group, LLC
To sell or not sell: That is the Question
In today’s environment, a business owner does not have to search far to hear and read about the strong M&A market. We are experiencing a long-lived seller’s market that continues to defy traditional business cycles. Valuations and debt lending ratios are at historic 15-year highs. There has never been a better time to sell your business in recent history. Could it get better? Maybe. Could it get worse? Maybe.
According to the 2018 Leading Edge Alliance National Manufacturing Outlook and Insights study, manufacturers have increased optimism as they look to the future and 62% expect their sectors to grow in the coming year. If you are the owner of a manufacturing company you may be asking yourself if this is the right time to sell. Based on our history with sellers, we would advise that the answer to that question does not come from the multiple in the external market or bank debt ratios, the answer lies within you and your business.
Here are some issues we would urge you to consider:
1. Timeline – It generally takes nine to 12 months for a full, open market sale. Profitability will be extremely important throughout the entire process. At the time of entering a sale process it is best if you are coming off your best year and entering your next best year. Declining profitability during a sale process is one of the biggest deal killers we experience.
2. Is your industry changing faster than you are? – A quick look around and you can see that any business not embracing the digital age is falling behind. Artificial intelligence and robotics are changing the landscape in manufacturing. Imagine just 10 years ago, the board at retail giant Sears assuring each other that consumers will never redirect their purchasing online. In 2016, U.S. retail grew 4% and Amazon Prime grew 40%. Do not wait to be Amazoned by your competitor.
3. Do you want one last big challenge? – Some buyers exit because they are looking for the time and resources to have one more big challenge. Oftentimes that means pursuing a career in a completely different industry. You do not need to be over the age of 65 to change direction. We are seeing many sellers in their 30s, 40s and 50s doing the same.
4. Does it feel like Groundhog Day every day? – Are you tired of employee hassles, government regulations and financial demands? Some sellers are just tired and no longer enjoy coming to the office every day. If you do not wake up with a passion for your business, you may want to re-evaluate your situation and give consideration to other options.
5. Are you facing a crossroads where you need to make significant reinvestments: Capacity issues? – This is somewhat rated to the point above. If you are facing major reinvestments needed in the business, you may want to consider all options. The most common issue we see is capacity concerns where the company will need to build or move to a larger facility to continue achieving their growth goals. Do you have the energy and desire to double down on your investment?
6. Health or family issues – Leading a business is demanding and can be stressful. We often help sellers through a sales process after they have faced a serious issue which has prompted a decision to sell. Like the market, these situations cannot always be foreseen. However, we encourage every business owner to examine their personal situation and evaluate: Do you or your spouse desire a different life? Do you have any pending health issues? Are you trading time with your grandchildren, children or spouse for wealth you will never be able to spend?
More often than not, we find that the decision to sell is about much more than market timing and dollars and cents. Oftentimes it is based on one or more compelling personal drivers. It is never too soon to begin planning your exit strategy. We encourage you to be ready so that when you do find yourself in a situation where you are considering a transition, it will be a voluntary, thoughtful process.
Ann Hanna, MBA, CPA, is managing director and owner of Taureau Group, a full-service boutique investment banking practice providing merger and acquisition services to guide privately held, middle-market companies through a complete transaction process. Ann is a licensed investment banker and real estate broker with a distinctive background that includes more than 20 years of C-level management experience, including involvement in multiple corporate start-ups.