Exit Planning Tag

Exiting Planning: The Key to a Successful Exit

Selling a business isn’t always about the price.  It is not like selling a house where the most important factor is finding a buyer who is willing to make the highest offer.  In fact, in my 25- years of being a business broker, I’d say that in roughly 20% of the deals, the purchase price was not the most important part of the deal. In the end,  sellers are focused on achieving a combination of things, and maximizing the purchase price is only one of them. 

Let’s examine some of the other most common goals and objectives sellers have.

1. Maintaining the seller’s legacy.  For one client, this means getting the buyer to agree to keep the company’s name (which was also the seller’s name) the same after the acquisition and not roll the company into the buyer’s parent company.
2. Protecting Employees.  For another client, they were the biggest employer in their small town, and the seller wanted to be sure that the buyer would not close down the plant, fire all the employees, and consolidate operations into their plant about 100 miles away.
3. Participating in the Upside. Many clients want to remain involved in some fashion (usually in a passive or silent role) with their business after the sale.  This often means accepting a lower price at closing but sharing in the company’s future growth going forward.  This can be structured in several different ways, including a minority equity interest, a royalty on sales, or an earnout.
4. Timing.  Several of my former clients had very specific timing goals.  In one case, it was due to the owner’s declining health; in another case, the owner’s son and key employee became disabled.  In both cases, the owners wanted to sell as quickly as possible before the business suffered, and its value was diminished.

The best way to ensure that you achieve your goals when selling your business is to develop a comprehensive exit strategy before you start the sales process.  This assures that everyone on your team is on the same page and is rowing in the same direction.

Rich Jackim, the Managing Partner at Jackim Woods & Co, is the author of the best-selling book, “The $10 Trillion Opportunity: Designing Successful Exit Strategies for Middle Market Business Owners”.  He has advised over 200 clients to create their exit plans and helped over 100 clients sell their businesses for a combined value of over $500 million. The book’s success led Rich to create the Exit Planning Institute and created the Certified Exit Planning Advisor (CEPA) program.  He has trained over 300 lawyers, accountants, financial advisors, consultants, and business brokers to develop exit plans for their clients.

If you are thinking of selling your business in 2021 or beyond, contact Rich Jackim at 224-513-5142 or rjackim@jackimwoods.com for a FREE, confidential, no-obligation discussion about your options. 

The Evolving Impact of COVID-19 on Business Sales and M&A Activity

The rapidly evolving impact of the COVID-19 virus is being felt everywhere—in the healthcare system, employment, politics, and the economy. This is certainly a time of uncertainty in our lives and businesses.  The closest thing I can compare it to is the tremendous uncertainty everyone felt in October 2008 as the financial crisis was unfolding.

Then, like now, business owners are seeing the values of their business plummet. Smaller businesses are naturally more vulnerable in an economic downturn, but everyone is affected in one way or another.  Strategic and financial buyers, sellers, business owners, and M&A advisors are all paying attention right now and trying to understand how this will impact them, and how they can mitigate the negative consequences.

Reflecting on the financial crisis of 2008-2009, however, helped me identify a few things that are likely as we deal with the impact of COVID-19  on the M&A market and business sales.

Like in 2008 and 2009, M&A activity will most likely contract significantly in the near future as the volatility in the stock market will likely put the M&A market on hold. For deals in the early stages, there will be a lot of anxiety on the part of sellers and a lot of caution on the part of buyers.  As a result, we expect that many buyers and sellers will press the pause button to wait and see how the situation unfolds over the next few months.

But there are a lot of indicators that when the COVID-19 scare is behind us, the M&A market will rebound with gusto.  Right now, strategic buyers and private equity groups are flush with capital. Not only are PE firms ‘open for business’ but many of them are accelerating efforts to close in-process deals, and even to scale future investing activities.

“I’m bullish on the outlook for M&A activity in the medium and long term once the financial markets adjust to the ‘new normal’. There is an unprecedented amount of capital that needs to be deployed, interest rates are at record lows, and the federal government’s stimulus package should make borrowing even easier.  At the same time, the record high valuations that we’ve seen over the last year or two are likely to decrease, which will make financing acquisitions less risky and fuel a strong increase in M&A activity.”

Richard Jackim, Managing Partner, Jackim Woods & Co.

If you are a business owner thinking about selling, what does all this mean to you?  First and foremost, it’s important to remember that while the next few months may be painful, the fundamental value of your business is likely still intact. There is no doubt that if you were waiting for the market to peak before you sell you missed the window.  But that doesn’t mean your business is unsaleable or that it has no value.  The value is still there because buyers buy companies for the future cash flow that business will generate.  That means buyers take a long-term perspective.  If your business is fundamentally sound, it is very likely that its value will rebound once the economy returns to the new normal.

Many of the business owners I’ve spoken to in the last few weeks believe that the current market conditions will scare away buyers. It is true that undercapitalized buyers will sit on the sidelines and wait for the dust to settle, but stronger financial and strategic buyers will recognize the short-term nature of the crisis and see this as a good opportunity to buy a good business at a lower multiple of EBITDA than last year.

If you’re thinking of selling your business it’s important to work with someone who understands the dynamics and changing motivations of sellers and buyers to advise you during these uncertain times.  Below are our recommendations for business owners to take over the next 2-3 months if you are thinking about selling in the next few years.

• Focus on Exit Planning (talk with us about our formal process that can use this time to help you and your business get prepared for sale)
• Get an evaluation of your business (so you understand how much your business is worth)
• Understand what you can do to improve the value of your business and make it more attractive to potential buyers
• Talk to your financial advisor to understand how much you need to retire
• Work with an M&A advisor or business broker to begin putting together a data room and formal marketing materials so you can hit the ground running when the market recovers.

Our team is comprised of experienced investment bankers and M&A professionals who literally wrote the book on exit planning.  We helped over three dozen companies between 2008 and 2010 help get ready for sale and then sold them for top dollar when the market recovered.  We will provide you with a value-focused, hands-on approach to help you and your business develop a strategic exit plan that allows you to exit your business on your terms and for its highest possible value.

If you are interested in selling in the next three years and would like to talk to a licensed business broker and M&A professional about how this crisis affects your options, please feel free to contact Rich Jackim for a FREE, confidential conversation at rjackim@jackimwood.com or at (224) 513-5142.