Deciding when to go to market can seem like a difficult decision to make. There is no formula that will tell you if you’re too early, too late or right on target. So how do you decide? Hitting that sweet spot gives you the best chance of achieving the Optimal Outcome, which we describe as finding the best deal terms with the most qualified buyer at the highest valuation.
Testing the market early allows you to understand the market value of your company. It is sometimes most helpful to go to market a little early to figure out the best positioning of your company and to evaluate the reception of buyers. This logic may seem a little fishy, but testing the market before you think your company is fully ready to be sold is the best way to understand the market and what the best timing for the sale should be. The market response will tell you what adjustments to make in your business so that you know exactly how to build a more valuable company. If the market doesn’t respond as you hoped, this will give you the information you need to adjust the company strategy, grow some more and be better prepared for the optimal outcome at a later time.
The process of getting ready to sell your company – organizing your materials, engaging with buyers, and soliciting offers – delivers invaluable insight. Use this insight to tune your strategy, adjust your message, expand your target market, modify your revenue model to build a more valuable company. Most first time entrepreneurs and many seasoned executives don’t really know. The only way to really understand what your company is worth and why it’s not worth more is to engage with high quality, professional acquirers. After testing the market, you’ll be able to focus on the elements of your business that need attention that will take you to an Optimal Outcome. From this, you will get invaluable insights into your business strategy, positioning, value proposition, your target market, business model, customer base, talent, competition and so much more. That’s invaluable management consulting.
Some executives have concerns about entering the M&A market too soon. They have fears that to test the market and not sell is an indication of failure. That’s actually not the case. Testing the market early allows you to understand the true market value of your company. Every CEO should know what the fair market value of his company is and why it’s not worth more. Every CEO has a responsibility to their board and their shareholders to have a well-researched answer to that question. This market feedback is critical to keeping your shareholders aligned and on the same page as you.
By all measures, we are enjoying a strong economy and robust M&A market where valuations are high. So a major risk to consider when deciding when to sell your company is associated with waiting too long, rather than testing the market too soon. When the market weakens and it will, you’ll have to work harder and longer to build a stronger company just to recover the value your company lost simply through a weakened M&A market.
Another major benefit of testing the market is that you raise your profile with the buyers. Even if your company isn’t quite ready, you’ll be able to get in front of potential buyers and not only hear their feedback, but also create a relationship. That relationship can be incredibly valuable when your company is better positioned to achieve the Optimal Outcome. Some relationships with buyers become strategic partnerships that can help you strengthen your company in other ways.
So my answer to the question of how to know when to go to market - it’s never too early to test the market if you are prepared to learn from the process and use that information to build a better company.