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Why You Need to Hire an M&A Firm When Considering Your Exit

By Generational Equity

07/17/2017

One of the most important decisions a business owner can make is also the one that is often delayed the longest: How and when will you exit your business? For those that are proactive, this concept is studied and considered years before the time of the departure.

Unfortunately, one of the biggest challenges we face as exit planning advisors is getting busy entrepreneurs to realize the importance of preparation and that planning for an exit is a process, not an event. The sooner the process begins, the better off the transaction will be for the seller.

Why?

Because it is rare that a privately held company will be ready for a transition to new ownership the instant the owner decides to sell. Many need preparatory work that can take time to complete. As M&A advisors, and one of the most successful operating in the lower middle-market, we see some common issues that can (and often will) negatively impact the value paid for a business. Some of these include:

  • Excessive owner dependence
  • Significant customer concentration
  • Lack of adequate financial reporting/controls
  • Very little (if any) repeat business
  • No middle management
  • Very little documentation regarding processes/programs
  • Lack of strategic planning and foresight

The good news is that, individually, none of these are deal breakers; what they do impact, however, is the time it takes to close a deal and the ultimate valuation paid by the buyer for the business. In order to optimize both the deal value and deal velocity, we recommend that areas such as those listed above be addressed as early as possible (and in many cases, even while we have a seller in market).

And that is another great feature of working with Generational Equity when considering a sale: We help our clients “enhance” the value of their operation by providing what we call a “Roadmap for Enhancing Value.” We typically look at 15-20 metrics and key measurements that are designed by our valuation team to provide our clients with firm ideas on how to enhance valuation and salability via implementation of key strategies.

For example, as part of our financial analysis, we will typically review profit margins by major clients to determine if there is any price flexibility that can be achieved by restructuring key deals and contracts. Often many business owners have never done this analysis and are amazed to learn that many of their larger contracts are coming at a significant discount to earnings and that overall margins can be dramatically improved by employing some pricing discipline.

This is just one example of the type of analysis we bring to our engagements. And, even though every company is obviously different in terms of industry, operations, size, etc., the common areas that cause buyers concern – if addressed strategically – can have a positive impact on value and speed of deal closing.

But the key here is starting early.

We emphasize this heavily in our exit planning conferences that we hold throughout North America. Our challenge again is getting the attention of business owners who often do not want to consider exit planning until external circumstances force them to. Do not fall into this group because you will not get an optimal deal at full price.

To learn more, attend a Generational Equity exit planning conference near you. Our meetings are designed to be highly educational and will introduce you to new concepts and ideas that will most likely radically alter the way you look at your exit plans. Contact us using the following links to learn more:

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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