For sale? Featured

8:33am EDT January 31, 2006
As a business owner, choosing to sell your company is perhaps the most important decisions you will ever make, and one you will likely make only once. Your decision impacts the strategic direction of your company and your long-term goals.

Smart Business spoke with Bob Baltimore, managing director of new business development at Harris Williams & Co., about important things to consider along the way.

How do you know when it is a good time to sell your business?
Throughout a company’s life cycle, there will be numerous reasons and opportunities to evaluate its sale. A sale can facilitate management or shareholder transition, provide capital for growth, or afford liquidity to owners on a mature investment.

Two keys to maximizing value are to sell when industry trends are positive, and when your company’s finances and operations are strong. Positive trends will impact the company’s story to potential buyers.

You should understand what is going on in the public markets and your competition. How high are multiples trading in your industry? Is the current M&A market active in your sector? Are current valuations relatively high compared to historical trends? Furthermore, is your own company’s performance showing historical and projected gains?

If industry and company performance are in an upswing, and a sale fits with your personal objectives, you may want to consider selling your company at a premium valuation.

Who should you include in the process?
During a sale, information should be controlled from start to finish. Generally, this includes limiting the number of advisers and people internal to the company, and controlling the information that is sent to the marketplace.

However, the active involvement of the senior management team is critical. Work with your investment bank to determine when to involve others. Because it is imperative that you understand potential pitfalls upfront, consider involving legal counsel early in the process, as well.

Based on your company’s specific situation, tax experts, accountants or other advisers may be beneficial. For example, if a company has a number of potential financial add-backs, an accountant could do some preliminary due diligence and provide an opinion on the potential earnings base a buyer may determine is sustainable. Work upfront helps prevent surprises on the back end.

How can you find potential buyers?
Generally, there are two types of buyers — strategic and financial. To find strategic buyers, take a look around your marketplace. Broadly speaking, companies who you compete with and those that touch your clients could be great buyers. In the last year or so, we have seen strategic buyers become increasingly active, and they will often pay a premium over other buyers for the right strategic asset.

Another universe of very active buyers is financial buyers, largely represented by private equity groups. Financial buyers have tremendous access to capital, and are experienced at helping management teams refine their business operations. However, access to this group can be very challenging for individual business owners.

A well-established investment banking partner, with a strong network in your industry and the financial community, can help you reach both audiences and the right buyer for your company.

How can you make your business more attractive to potential buyers?
Begin by getting your house in order. By making small improvements to your company’s assets, the whole package becomes more attractive. Step back from your business and evaluate potential concerns a buyer may have, which may include competition, sourcing, strategy, pricing trends or operational issues. Your investment bank can help develop a cohesive response to these concerns before contacting prospective buyers.

Additionally, point your sights to the future. Buyers pay for projected performance, not past performance. Prepare a well-thought-out, strategic plan for the next 24 to 36 months that clearly demonstrates your company’s growth potential. Buyers will respond positively to tangible demonstrations of your company’s growth opportunities and financial goals.

While you can’t change what a business does or how it operates overnight, you and your management team can put together a cohesive story that highlights your strengths and the positive prospects for your company.

This was prepared for general information purposes only and is not intended as specific advice or recommendations. Any reliance upon this information is solely and exclusively at your own risk.

Bob Baltimore is managing director of new business development at Harris Williams & Co. Reach him at bbaltimore@harriswilliams.com. PNC offers expanded M&A advisory and related services through Harris Williams & Co., one the largest middle market M&A advisory firms in the country. Harris Williams & Co. is the trade name for Harris Williams LLC, a subsidiary of The PNC Financial Services Group Inc. Harris Williams LLC is a broker-dealer registered with the SEC and NASD and a member of the SIPC.