There will always be justifiable reasons to sell a business, but equally compelling reasons NOT to sell. Making the sell vs. hold decision in M&A is an individual affair and is almost always based on qualitative and quantitative reasoning. If all decisions were based solely on the quantitative logic of a financial analyst, then most owners would choose to hold rather than sell. This is one of the main reasons the decision to sell a company is more often based on soft-metric reasons than simple ROI calculations. Here are a few I have personally seen:
- The children can’t and/or won’t takeover. If the kids have grown-up around the business, there is often a high probability they will not want to take over the business. This issue is further compounded by the fact that most businesses that pass to second generation owners do not survive. This is only one of several issues with second generation businesses that should have first generation owners seriously reconsidering a dynasty with an outright sale. In many cases, the kids can’t afford the cost of buying-in without putting substantial strain on the financial resources of the company through leverage–which can further exacerbate second generation business issues.
- Planned retirement. Mortality will get the best of each of us at some point and no one can continue working to infinity. At some point, retirement (whether natural or forced) will occur with every long-standing business owner. Planning ahead for a retirement is always much better for creating an atmosphere where the intermediary can work to maximize the value in a business sale. If retirement is properly planned, the seller is more likely to put pieces in place that will better prepare himself/herself for the sale of the business. This includes financial and emotional. There are no shortage of advisors that can assist across the value-chain for individual business owners who may be soon experiencing a profitable exit–from tax to financial investing.
- Strained partner relationships. Years after the honeymoon stage of a business partnership ends, owners can become disenfranchised over any number of personal or business issues. In some cases, the altercations can be heated and end-up in places where neither partner would have planned when they started the business relationship. In such cases, a partial or full business sale may be the answer to alleviate the stresses of a strained business relationship.
- Divorce. Like business partnerships some marriages also have the pendulum swing the opposite direction of the honeymoon phase. Many a business has been sold as a result of divorce court proceedings. The key to navigating the sale of a business during the time of divorce (as with the time during any business sale) is to have the discipline to run a full sell-side M&A process and not get impatient with speed.
- Health issues, or worse. The inevitability of mortality eventually catches everyone. Sudden health setbacks and even death can impact the ownership and operations of even the most owner-absent businesses. The best way to avoid a fire-sale in such circumstances is to prepare the business for sale long in advance of an actual sale.
- Tired or ready to move on. In many cases, business owners are simply fed-up with the daily grind of operating a business in a high-stress scenario. Company owners who have operated their businesses for years and have reached the point of management fatigue are more likely to sell for personal freedom reasons than fundamental ROI analysis reasons.
Deciding to sell a business is never easy. In some instances, the event can even be forced by tragic events. Even if tragedies are not involved, the decision itself can be a gut-wrenching one, fraught with sleepless nights, patient (or inpatient waiting) and even the thrill of an eventual cash-out. Navigating the waters with a trusted, experienced advisor is always well-advised.
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC, a middle-marketing M&A and capital advisory firm. Nate works with corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He holds Series 79, 82 & 63 FINRA licenses and has facilitated numerous successful engagements across various verticals. Four Points Capital Partners, LLC a member of FINRA and SIPC. Nate resides in Seattle, Washington. Check the background of this Broker-Dealer and its registered investment professionals on FINRA's BrokerCheck
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