Posted on May 15, 2013 by Justin Ray| Comments (0)
We get asked this question frequently, and in many ways the short answer is ‘when you can, rather than when you have to’. But there are a few areas that can indicate whether it is a good time to explore a sale, which are discussed below:
- When there is a recent history of growth, with more still to come. Buyers attitudes can reflect those seen on the housing market – no one wants to buy at the top of the market. For acquisitions to be judged as successful, the buyer needs to increase the value of the assets they have acquired somehow – organic growth is often the easiest way to do this.
- When profits are strong. Profitability has a significant impact on the value of the majority of trading businesses. If profits are unusually low (as many are resulting from the economic downturn) then it might make sense to concentrate on repairing them before focussing on a sale.
- When there are regulatory or legislation changes. Being an early adopter of new frameworks can give your business a real competitive edge, thereby increasing attractiveness to buyers who either require assistance in bringing their own business up to standard, or are simply not interested in acquiring any business that is non-compliant. Regulatory change can bring widespread corporate consolidation, and being a ‘best of breed’ company in this climate will increase value.
- When the owner managers still have appetite for a reasonable handover period. Leaving a sale until the time you want to retire can be risky. Buyers usually want the sellers to remain with the business for a period of time – up to two years – as this allows for a thorough handover of key relationships and know-how to the new owners,
- When capable and ambitious second-tier management are in place. The ability to leave behind a management team who are able to run the business without you can minimise the handover period required, and significantly de-risk the acquisition from the buyers perspective.
- When you have received direct approaches from potential purchasers. You are in a strong position when you have been contacted by someone specifically wanting to acquire you, although we would always recommend testing the market before accepting the first offer that comes along.
Timing is important when it comes to achieving the most successful business sale, and the right time for you may well be different to that of other businesses, even those in the same industry. If you would like to discuss whether it is a good time to sell your business, please contact me, Head of Corporate Finance for Critchleys, at email@example.com or via 01865 261100.