Understanding How Merger Momentum Impacts Your Business Decisions

The merger-friendly business climate seems likely to continue well into 2014. Favorable interest rates are allowing more buyers to access affordable financing. Although rates are expected to rise in 2014, they will still stay at historically low levels.

But the pace of the marketplace shouldn’t be the only reason to place your company on the sales block. Before taking advantage of the favorable market, be sure you also have other compelling reasons to seek out a merger or acquisition.

Timing is tricky business, and it can be difficult to pinpoint just the right time to sell. But if you have enough reasons for selling your business in the not-so-distant future, get your company into shape first so  you can max out return on your investment.

Best news? If you end up delaying your plans, these steps will still leave your business better off. Here are four strategies experts recommend:

1. Pay more attention to the books.

While about a quarter of small business owners identify merger or acquisition with a third party as their likely exit strategy, a surprisingly large number still keep haphazard books. Neglecting the books is a quick way to turn off buyers who are looking for evidence of profit, and either actual or potential growth. Be sure your numbers can withstand close scrutiny.

To truly put your best accounting foot forward, consider an investment in audited financials for a few recent years. While the cost isn’t insignificant, it can be a great investment to improve buyer confidence.

Another good reason to get your financials into shape?  Life’s uncertainties could mean you need to put your company on the market sooner than expected due to unexpected health issues or family needs. For those reasons, it’s best to be sure your company is “sale-ready” from an accounting perspective at all times.

2. Step back before stepping down.

A business is always more appealing to a buyer, and typically commands a higher selling price, when there is strong evidence that its success is not tied primarily to the owner. But that can be easier said than done, particularly for companies where customers have been paying for the business owner’s personal talent or expertise. Creative service companies often fall into this category and can be a very hard sell no matter how competent the rest of the management team. The less day-to-day significance of the owner, the easier it will be to step successfully into a merger or acquisition situation.

Take things a step further and document all processes that allow your company to operate in the owner’s absence. Automate as many aspects of your business as possible. Delegate leadership roles and responsibilities to other staff long before you are considering a sale. All these steps can help to build buyer confidence. Some serial entrepreneurs even build a business to sell from the point of launch, structuring it in such a way as to downplay the importance of the owner.

3. Safeguard intellectual property.

This can be a slow and deliberate process, but it can also pump up the value of your business, so plan ahead. For example, if you need to get a patent for something, get it taken care of early in the process. Trademark your company name and seek out copyright protection as appropriate.

Be aware that going through these steps may uncover the unfortunate news that your company is infringing on the trademarks of another. While this is never welcomed news, better to find out now and fix the situation than have a prospective buyer bring it to your attention.

4. Know what your business is worth.

This isn’t as simple as it might sound. A good first step is to secure several independent valuations prepared by reputable firms. This gives you a snapshot of where you stand before you entertain an offer. If your business is not worth what you anticipated, you may take some steps to increase its value before it goes on the market. You may want to go after larger contracts to improve sellable cash flow or make strategic investments in the business to increase its worth.

Pay attention as well to how potential purchases impact the value of your business. For example, leasing equipment versus buying and depreciating it has different consequences when it comes to putting your business on the market. The latter could increase the value of your business rather than showing up as an expense straight out of cash flow.


Nate Nead on LinkedinNate Nead on Twitter
Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
No Comments

Post A Comment