Timing is one of the most important factors in achieving a successful company sale or divestiture. So how do you know when the “best” time to sell occurs? The best time to sell a business is when you have no need to do so, when the company has demonstrated solid performance and the future looks bright. You should also rely on your investment banker who can provide insightful information regarding market trends and assist in judging the best time for you to sell based on your situation.
Buyers are attracted to a successful track record. Further, buyers are attracted to perceived future upside. You should not be overly concerned about leaving this future growth for the buyer as you will compensated for it through the premium paid. Bottom line: Sell a business when things are going well and the future is promising.
There are five primary factors to consider as you are thinking about timing the sale of a business. Rarely do all these factors peak simultaneously, so judging them on a relative basis is important. However, timing a sale when the general momentum is in your favor improves your odds of achieving a high price. The five items to consider include:
Quality companies with unique competitive advantages, a strong market position within their niche, growth prospects and solid management are successfully sold in just about any market.
Buyers generally pay based on trailing twelve month earnings and expected future earnings. So, if company performance has recently declined, you should not anticipate buyers paying on some level of past earnings achieved. Sell a company before this happens.
The typical company sale is a complex and lengthy process taking six to nine months, or longer. You should sell your business only when you are personally committed to the process, both mentally and emotionally. Given the number of deals buyers review and their limited transactional resources, they will not waste their time with uncommitted sellers. Aligning good business performance and personal commitment puts you in a position of strength, which provides the greatest opportunity for successfully achieving your goals.
Reproduced from Wilcox Swartzwelder & Co.