the BERINGER group Newsletter



If you want to win the race, begin at the finish line.

by John Fye and Brad Standridge


The Right Time

For a private business owner whose exit strategy is to sell, timing is critical.  As the economy evolves from the recent crisis, the transaction environment is becoming increasingly interesting, filled with excitement, opportunities, and also danger.  The following pointers will help you position yourself and your business to make the best of this interesting time.

The Right Value

Naturally, an owner who is ready for an exit hopes to get the most value from a sale. At present, most buyers are still valuing businesses on some multiple of EBITDA, which for many companies has been reduced to a fraction of where it was just two years ago.

The latest recession pushed owners into survival mode.  Revenues, margins, and earnings were devastated.   Many of those who weathered the storm have now stabilized and are profitable but still need time to fully recover in order for valuations to return to where they need to be in order for a sale to make sense.  Keeping an eye on current valuations will help you determine exactly the right time to make a move.

Define Your Objectives

During this recovery phase it would be wise to actively identify and define your objectives in selling the business.  What exactly do you want to accomplish with a sale?  Is it to get the highest price, or is the net after-tax value the driving factor?  What financial consideration is required for shareholders to exit the business?  Is there a group of willing and able key management that deserves a reward or possible chance at equity participation when the stock ultimately changes hands?   Should that privilege be extended to all employees?  Identify the ideal time to sell your business, and then establish a realistic timeline over which that sale could take place.

Run Transaction Models

Once you know what your finish line looks like, the next step is to run models on various transactions and assess how effectively they meet your objectives.  These would include a strategic sale, financial sale, ESOP, management buyout, or some combination of these.  Each transaction structure can have different valuations, tax implications, timelines, and a host of additional issues to consider.  Some transactions can take years to complete and may go beyond your optimal time frame for an exit. Some require more sharing of confidential information than others and may be outside your comfort zone for protecting your intellectual capital.

Running through the details of how each of the transactions works and developing a clear understanding of the pros & cons of every viable option will help you develop your plan and get the business across the finish line in as short a time as possible.

Prepare to Ask for More

Your preparation for the transaction models may help you to ask for more money when the sales process begins.  If you can generate an accurate snapshot of the present financial health of the business and also demonstrate a strong forecast of revenue and profits over the next three years, you can command a higher asking price when the time comes.  Demonstrating strong key management back-up in the event of a leadership change will also go a long way towards putting your business in a position to maximize value.

Understand Tax Laws

Familiarize yourself with any major changes in the tax laws that would affect the timing of a successful sale. Keeping in mind that the extension of the Bush tax cuts and the Obama tax cuts of 2010 are scheduled to expire at the end of 2012, any ensuing increases could take a major bite out of sale proceeds. It may be the perfect time to make a direct gift or sale of stock of your closely-held business interests.  The gift tax assessed on that transaction may be much lower now than it would have been previously and allow you to take advantage of the increased gift tax and generation skip tax in effect until December 31, 2012.

Any of these strategies may be effective at transferring wealth to your descendants or other beneficiaries, and these strategies can be used alone or in combination, depending upon your specific situation. In any event, an appropriate strategy could have the effect of further maximizing value to the shareholders and their families.

Assemble Your Team

Finally, recruit a strong team of professional advisors to lead you through the sales process before the process has even begun. This should include an investment banker, a transaction attorney, an accountant, and a business transition consultant who specializes in preparing companies for sale. Having a team that is expert in this arena and is already familiar with your business and investment goals enables you to respond quickly to opportunities.

Spot the Deal

Historically, the best deals are done coming out of a crisis.  Prices for businesses should be good as the economy comes up from the bottom of the business cycle. Leverage is lower, growth is higher, and leverage and the purchase price are coming into alignment. If you have followed the steps above, you will be ready to act when the time is right for you and your business.






Copyright 2011.  The BERINGER Group