To achieve a successful exit, the timing decision of when to sell is a critical one. If the right timing decision can be made, the chances of a good outcome and price for a business owner increase significantly.
So how do owners ensure they get their exit timing decision right?
Good exit timing is based on an assessment of four distinct ‘cycles’, which rise and fall over time and at different times for different owners and their businesses. It is the convergence of these cycles for an owner that often signals the right time for them to begin an exit.
1. The economy and sector
Selling when the economy and as a result the Human Capital sector are doing well domestically and internationally provides a good backdrop of certainty, growth, valuation multiples and confidence across the board (although good deals can still happen for owners at all points of this cycle).
2. The M&A market (of buyers and competing companies for sale)
Going to market when there is a high number of active potential buyers for any company obviously helps an exit. However, it is only the most ‘strategic’ and therefore high paying buyers for a business (rather than all buyers in the market) that should be included in this assessment as these are the ones that matters in any exit.
The number of similar companies already for sale and competing for the attention of the same buyers is another influence on exit timing. Selling when the level of competition is low always benefits a vendor’s exit. However competition will tend to be high when cycle one (economy and sector) is approaching its peak. For this reason, selling “before the rush” of similar business coming to market is often a shrewd move.
3. The Business
Exiting when the business is in a stable growth phase, has a number of years more growth ahead, and will genuinely benefit from the assistance of a new owner are all important ingredients behind a good exit timing decision.
Succession planning being underway is also important as is deferring the start of risky new projects until a sale is completed, for example expansion into new sectors or countries.
An owner who no longer enjoys their involvement in the business or feels that they are no longer the right person to lead it (on account of its changing needs and culture as it matures) is usually a signal that it is time to exit. Not selling when these feelings set in can mark the start of decline in people-based businesses, after which a good exit becomes an increasing challenge.
It is very rare (in fact in our experience almost impossible) that all four timing cycles ever come into perfect convergence. Owners who expect and wait for this convergence to happen are usually left disappointed when their time for exit never arrives.
Based on experience, our advice on exit timing is simple – the convergence of two or three cycles is often the best realistic outcome for any owner – and therefore careful attention should be given to an exploring exit when this convergence happens or is on course to happen.
Copyright © Boxington Corporate Finance Limited
The copyright in this article is owned by us and may not be adapted, copied, published, distributed or redistributed in any form or media without our prior written permission unless full and clear credit is given to Boxington with appropriate and specific direction to the original content.