I was introduced to a new client recently who had taken great pains to set his business up for a successful sale. Growth was solid, management strong, systems up to date and contracts in place with top clients at good margin. The financial profile suggested an achievable sale value of around $3 million, with sufficient time to complete an earn-out if required.
The only problem was, the valuation was purely achievable on paper. The fact of the matter was that it was highly unlikely that he would be able to find a buyer.
Why? Because he was one of potentially thousands with a similar profile in a sector that had not demonstrated a great deal of M&A activity at this level in recent years. There simply are not enough qualified buyers to confidently pursue a sale strategy.
So we decided to turn him into a buyer so tha he something to sell. You see, it’s fairly a straightforward proposition to sell a “personal exertion” business in the current climate. Banks are still willing to lend against home equity for the purchase of stable, robust small businesses in which the owner will work on a daily basis. These types of business, generally valued at less than $500,000, have no shortage of buyers.
Likewise enterprises worth $20 million and above. Companies with this price tag are generally attractive to cashed-up corporate buyers with strong balance sheets and private equity interests, both of which are experiencing a frustrating lack of solid M&A opportunities.
If your business appeals to neither the micro-market or the Middle Market, you are likely smack bang in the middle of “no man’s land” when it comes time to sell. With this in mind – and with no positive change in the global economic climate on the horizon – perhaps the best way to ensure a successful exit is to create a business that will appeal to the buyers ready and willing to buy. And to do this requires scale, structure and financial performance – something that is very difficult to achieve organically.
So, consider becoming a buyer so that you have something of value to sell to those that have the money. This requires a burning desire to succeed, a solid strategy, an openness to sharing the spoils with others and the acknowledgement that whilst you may not have the skills or experience to achieve it yourself, there are plenty of people around who do and will be more than happy to lend a hand.
This is a buyer’s market, with prolonged economic uncertainty diminishing valuations and vendor expectations, tighter credit giving rise to acceptance of vendor finance and earn-outs and a plethora of opportunities. Don’t bang your head in frustration against the proverbial wall: take advantage of the opportunity staring us all in the face to achieve a successful exit of your own.