Exit Strategy – When is the right time to sell a business?

Personal Readiness

Are you ready to sell? This is a very personal question, that only you can answer, but most entrepreneurs will ask: Have I reached financial independence or will selling help me reach this goal? Have I achieved personal career goals? Are there other activities or ventures I want to pursue that selling will facilitate? Other common personal factors to consider include your health, retirement planning or family plans. 

Stakeholder Readiness

If you have a business partner, or you have taken on investment, then the needs of your fellow owners and investors are paramount in the decision-making process. Deal structures such as MBOs can facilitate exits for single shareholders, but in those cases typically requires complex planning and structuring, with input from all stakeholders. More typically all stakeholders will exit at the same time, so it is critical to have strategic alignment from the outset among stakeholders about exit horizons and expectations/goals around exit valuations.

Business Foundations

It is crucial that your business can demonstrate strong foundations and stand up to scrutiny. Selling a business means opening its doors for critical analysis by potential acquirers and their advisors. Strong foundations not only help improve valuation, but also reduce execution risk, which is the risk of an acquirer pulling out or reducing price during diligence. Key points to consider include the strength of the senior & secondary management team, robust governance & financial controls, diversification of clients & revenue streams, patents or protected IP on products/services, alongside good records in H&S and staff retention.

Business Performance

Financial performance is a very important factor as it not only directly impacts the enterprise value of your business, but also influences a buyer’s perception of the robustness of the business. It goes without saying that companies that are enjoying strong growth, alongside stable or growing margins, will often attract valuations above market averages, but they also can generate more preferential deal terms due to the perceived lower risk the company presents to an acquirer.  

Market Conditions

Market conditions can have a significant impact on the enterprise value of your business. High growth markets will often drive increased demand from both strategic and financial acquirers. This increases the likelihood of an off-market approach that will often yield better deal terms and valuations than via a formal marketing process through advisers. The growth potential of a market is also very important, as well-placed companies in dynamic markets are usually the ones that attract the highest valuations. The timing of a sale is also critical, as waiting too long could result in a downturn in the economic cycle that could reduce valuation.

Planning and executing a successful fundraise for exit often requires persistence, resilience, and the ability to effectively communicate the company’s value proposition, and by focusing on the factors discussed, entrepreneurs can optimise the value in their business. 

Maven is an experienced Private Equity investor and we can help owners release equity in their business, whether you want to pursue new opportunities, are succession planning, or simply want to step away and enjoy the fruits of your labour, we can help you explore your options. If you would like to discuss whether PE is right for your business, or for the business you advise, then please get in touch with one of our investment team at funding@mavencp.com.