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What’s your exit strategy?

Seven questions you should ask yourself when thinking about a sale or merger

Bassem Mansour

April 13, 2018

By: Bassem Mansour

You’ve built your business for decades and are ready to retire. Maybe you’ve struck gold unexpectedly and want to cash in. Or, you’re the head of a family company, but your children aren’t interested in taking over. Whatever your reason, you’re considering selling or merging your company as a way to exit. What are the top seven questions you should ask yourself before making the decision?

1. Is my company in good order?

Inadequate management practices can make a company unattractive. Premium buyers do not want to pay for the privilege of cleaning up someone else’s mess. Uncollected accounts receivable, inaccurate inventory and poor financial recordkeeping also make it harder to value and market a company.

2.Who is my target — a buyer or a merger partner?

Are you open to merging with a strategic acquirer or a competitor; or selling to a private equity firm? Each of these affects the structure of the transaction, the company’s valuation, the associated risks and the approach to the deal. Identifying the target and your flexibility early on narrows the decision tree and makes the whole process easier.

3. Do I know what my company is really worth?

Emotional attachments, lack of market knowledge and other factors can skew your perspective on your company’s value. A business valuation specialist can help determine the right merger terms, which can maximize your return while also ensuring a faster transaction.

4. Am I willing to leave money on the table?

A fatal flaw of many entrepreneurs is trying to time the market. Market timing is for Wall Street traders, not middle-market business owners. Companies generate higher M&A multiples when the other side believes more growth is possible. It’s better to be willing to close the deal, even if you have not made the last nickel out of a company.

5. Can I be flexible on financing?

Increasingly, merger partners as well as buyers are asking for assistance with financing, including help with arranging loans, alternative types of collateral and seller financing for part or all of the price. If you can afford it and put in safeguards, seller financing can attract buyers who otherwise might be shut out. In a low-interest rate environment, seller financing can be attractive to a seller if the appropriate protections are afforded, when compared with the alternative market rates of return for cash proceeds.

6. Who will market my company?

Building a company and merging it are two different animals, if only because emotional attachments can make it difficult to maintain perspective. It’s often better to bring in professional advisers to market a company. Besides, investment bankers not only can find buyers, they also can generate better terms.

7. Am I willing to work for the buyer?

Many people become entrepreneurs because they want to work for themselves. It can be hard for them to work for someone else at a business they once owned by themselves — especially if it is a forced deal or a merger with a competitor. Yet a willingness to work during the transition can make the difference. Some private equity managers, for instance, won’t consider a company if the owner plans to walk out the door after the transaction.

Related articles: PE firm co-CEO advises clients to leave a little growth for the next owner

Bassem Mansour is co-founder and co-CEO at Resilience Capital Partners. He is involved in all aspects of the firm’s operations, including investment decisions, portfolio company oversight and investor relations. He is a member of the Cleveland Chapter of Young Presidents Organization, as well as several professional organizations and is a frequent speaker on private equity and distressed investing.