Knowing when to sell is quite intimidating and it’s easy to wait too long to sell your company. Going to market requires a commitment of time, attention and money, that’s easy to put off but you don’t want to wait too long and then find out that you probably missed your best opportunity. Consider hedging your bet by testing the market, going to market a little early, engaging with buyers to build a deeper understanding of how valuable your company may be, how to optimally position your company, and how buyers will respond. You might actually end up selling.
There’s a popular quote attributed to several folks including JP Morgan and Baron Rothschild, “I made my fortune selling too early.” Since many business owners and entrepreneurs have a portfolio of one (their entire net worth is tied up in their company) locking in your gains a little early is a good strategy.
Here are some of the clues that will help you understand the timing and whether you’re positioned to go to market.
History shows us that tech M&A cycles generally track economic cycles which mean that they peak every 7 years or so. We’re currently about 9 plus years into our 7-year cycle. How much longer this cycle will last is tough to judge. Obviously, more acquisitions close on better terms when the market is strong. Conversely, as the economy weakens, deal volume may stay strong, but you can count on a weakening of deals terms and an increase in the number of sellers at lower values creating plenty of competition, favoring buyers.
Keep a sharp eye on the markets you sell into and the buyer behaviors in these markets. You’ll want to watch in particular for changes in the technology, regulatory and compliance influences along with the condition of your competitors. Are buyer preferences changing? Is the manner in which the actual purchase occurs evolving or even subtle shifts in pricing? If so, pay attention. If you’re seeing changes that can contract, expand or reshape your market, these are indicators that you may need to make a bold, strategic response that is best done with the assistance of a larger better-resourced buyer. Selling early can create an important early mover advantage for you. Waiting may pass the advantage to a known or an unknown competitive force that will be difficult to counter.
Changes in the economy, market, technology, and buyer behavior create a strategic imperative for companies, including your competition. You’ll want to be watching carefully for whether there are new companies encroaching. They may encroach in a wide array of ways – with new technology, new products, better pricing, more efficient distribution, alternate business model, even more effective, personalized marketing. Be alert to a consolidation among your competitors. These are signals that should influence your exit strategy and when to use M&A to assure the continued success of your company.
- Technology Trends:
Corum keeps track of the most influential technology trends that drive M&A. Strong alignment with these trends can mean that your company is well positioned with buyers and already worth a lot to buyers or will be soon. If you are aligned with any one of these trends, it might be even more of a reason to test the market now instead of waiting until your particular technology trend becomes embedded in the mainstream – indicating that your window of opportunity is closing. Selling as a follower, even a fast follower may mean you are too late.
Keep an eye on these cues to have a good idea of when to go out to market. Wait, and it may mean that your company won’t attract attention from the quality buyers, won’t get a good valuation or deal terms and becomes attractive only to the value buyers. Wait too long and you may even struggle to recruit a quality M&A advisor.
Even with a vigilant eye on the cues, some might end up missing the key signals. If this happens to you, you’re likely to end up having to work much harder to grow sales and maximize profits to generate the working capital needed to grow faster to catch up for what you lost once conditions turn against you and competition strengthens. Losing out on that opportunity will set your company back and may mean that you must fight off new competitors with deeper resources in a dramatically different competitive landscape.
Many executives see that going to market late is often much worse than going to market early. What you learn from testing the market is invaluable and you’ll be a better company because of it. In the end, going out too soon has a simple remedy, but going out too late has some very unfortunate consequences.