There comes a time in every boardroom when selling enters the conversation. And given the seller-friendly market coming out of the pandemic right now, these discussions are likely happening sooner rather than later.
For family businesses, the prospect of passing the company's future to outside hands can be the single most difficult topic to broach. Even still, conditions as I see them are favorable for any seller who is well prepared to take advantage of today's pent-up investor appetites. Merger and acquisition activity was ramping up before the pandemic put many plans on ice, and now that built-up demand is returning in force. At the same time, cash-flush companies are entering the market ready to invest in their growth while ideal financing terms are bringing even more buyers into the game.
All told, the demand for healthy and sustainable businesses is growing, leading to more multiples and higher valuations. If the thought of selling has been circling your family office, now may be the time to bring it to the table.
But putting a company up for purchase requires more than posting a "For Sale" sign on the front door. Just as home sellers must clean the rooms, mow the lawn, and be ready to move quickly on an offer, so too must companies do the upfront work to show well in the market. Among other things, this means ensuring the books are tidy, the management team is prepped, and the proper tax structuring is in place to support the most efficient sale possible. It also means having important conversations with the business' stakeholders to define what kind of buyer they want to court and what they want out of a sale.
Preparing to make a deal is also about providing potential buyers with confidence that the business is well-positioned for long-term growth—even in the wake of a global pandemic. It pays to demonstrate to investors that the business has been consistently generating profits and achieving its strategic objectives, and that these trends are likely to continue. In other words, you need to have a solid business plan showing the growth of business today, tomorrow and in a few years. Buyers are looking to get their money back quickly and exponentially.
Few companies have escaped the pandemic completely unscathed, including family businesses. As such, a significant part of post-pandemic due diligence will be carving out the impacts of COVID-19 disruptions and assessing their long-term implications. Buyers want to see how their targets have responded to recent challenges, how they plan to bounce back (if required), and if there are strategies for growth—whether through new products, new services, or adapted strategies.
Know what you're getting into
A decision to sell should also never be taken lightly—because once that decision is made, neither sellers nor buyers want any surprises. It therefore helps to enter the market with a clear understanding of how a deal might play out. Start with an understanding of what your business is worth. What do you think buyers would be willing to pay in today's market? I cannot overstate how important this is. And if you're not sure where to start, financial advisors are familiar with all of the various tools and methods available to help you reach this critical understanding.
It's also going to be helpful to recognize that deals in today's market may take longer to lock down than they did in years past. Similarly, it's important to acknowledge that preparing management for new ownership might take longer than anticipated, but that getting everyone on board is time well spent.
It's also important to ask the right questions—which means knowing which questions to ask. For instance, as a family-owned company, what are you looking to sell? What earn-outs would you prefer? Who are your ideal buyers, and are you targeting them appropriately? Answers will vary among every family office, and consensus might be hard to reach. Here's where it helps to pull in perspectives and expertise from outside parties who can inform the discussion with unbiased insights and market perspectives that will guide leadership through the decision-making process.
The bottom line, from my perspective, is this: market conditions are lining up for sellers. The question is: Are you ready to make the deal? Conversations about selling the family business are rarely easy, but the right insights, due diligence, and prep work can set all members up for success.