Preparing to sell your business into a tsunami of boomer transactions

Ed Marsh | Sep 5, 2013
This is the 2nd related blog post regarding the M&A implications of demographics in the US.  SME research predicts that as many as two million companies will be sold by 2020 as baby boomers age.  PWC finds that of those, more than 50% plan to sell to other businesses.

Yesterday we looked at the favorable opportunity ownership transition creates for sales within family.  Today we'll look at the stark reality for those who will be shopping their businesses on the market - and some critical preparatory steps they can undertake now to set themselves apart from the horde.

And it was the worst of times

Do you ever sit there on a sunny, warm peaceful September afternoon knowing from the weather report that a hurricane is coming, but almost not believing because conditions are so perfect at the moment?  It's surreal - and if you ponder life prior to sophisticated meteorological prediction even more so.  We've got great tools to predict certain conditions.  Here's another.

Today sellers hold the cards.  As the private equity and corporate development folks will tell you, there's lots of money chasing deals.  But that's not going to last.  If you are planning on running your business for five more years, and then cashing in through a sale, you'd better be clear how conditions at that time are likely going to differ from today.

You will be competing against one million other business owners trying to sell at the same time, desperate to fund their retirement.  Therefore you should plan on a much more discerning market.


Traditional dealmakers will tell you "it's all about EBITDA."  And that remains fundamental.  But it's not quite so easy.  Discounting future earnings requires a number of adjustments based on various factors....and many guesses.  And as the Association for Corporate Growth (mid market M&A 'trade group' - @ACGGlobal) has emphasized recently in various member events and webinars, due diligence is getting fuzzier as savvy buyers evaluate a number of soft factors in their assessment of an acquisition target.  In depth review of customer diversity, stability and longevity, and IP quality, for instance, are now common aspects that are evaluated - and no one digs into those with the goal of offering you more.  It's about negotiating lower or even walking away.

Naturally revenue and profit trends figure prominently in the projections of future earnings and the discount calculations of their value at the time of the transaction.  Many US manufacturing SMBs find that business growth has slowed substantially.  Against a backdrop of 2% GDP growth it's an unusual company that can take traditional sales & marketing approaches, focused solely on the domestic market, and generate 7-10% consistent annual growth.  And if you're "just hanging on", buyers will know; they'll adjust your valuation accordingly; and you'll be hesitant to take a larger earn-out (normally a way to increase total proceeds in exchange for reduced cash up front) because of your uncertainty about future performance.

But your challenge as a seller will be bigger than the negotiation.

Selling against competition

You've already had your fill of competition just selling your product.  But now you're going to face stiff competition for deal dollars as you try to sell your company.  You have to start immediately to build into your business certain fundamentals which will service to simultaneously:
  • distinguish your business for sale from a multitude of others
  • create strong positive revenue and profit trends in the meantime
  • foster strong client/customer relationships to enhance your valuation
  • establish your business as a diversified global entity (regardless of size) as is now the expected norm
  • increase your confidence in future performance and willingness to accept a higher earn out
The bottom line is that many of the steps that you will take to avoid the traps that will distress your valuation, will simultaneously enhance valuation and distinguish your business from a myriad of others.  Buyers will see value and eagerly court you, even as others see their retirement plans sadly compromised by a distressed liquidity event.

Steps to take today

1. Get serious about your marketing -  I don't mean another trade show and one more magazine ad.  I mean comprehensively adapting the way you market and sell to the way buyers now buy.  Fair warning - some of your traditional employees are going to rebel; you'll wonder if you're making a grave error; and it will take time.  But if you do it right, I promise the sun will rise again and you'll create remarkable growth in qualified leads, customer conversions, satisfaction and engagement.  So you'll simultaneously boost your revenue trend line, grow profitably, and foster loyalty.  All will contribute positively to your valuation.  You need to plan on 6 months for traction, a year for exciting results and two to three years for a measurable trend. 

2.  Diversify globally -  This doesn't mean plunge headlong into the BRICs.  (In fact we often advise against that!) And it doesn't mean "accidentally" pursuing random opportunities or obsessing over transactional details.  Rather it means taking a cerebral approach and constructing a strategy that will support profitable growth in diverse global markets.  That will require thought, research, commitment and a carefully integrated approach.  But build it properly, and your global business development program will simultaneously delivery sustainable revenue growth and significantly diversify your business against unwelcome shocks in single markets.  You need to plan on 2 years to have traction in several markets, and 3 to be consistently profitable.  In the meantime you'll build a compelling pipeline and learn lessons abroad that will strengthen your business at home too.

And to top it off?  Business will be challenging and fun again.  It's such a drag to "go through the motions" each day just marking time until you can get out.  Undertaking these two strategic initiatives will:
  • make your business more marketable as the competition among business sellers increases as boomers retire
  • support your valuation through outperformance against competitors in key areas like revenue growth trends and customer engagement and diversification
  • get you engaged, active, challenged and rewarded right across the finish line
  • depending on your plan and objectives, maybe even facilitate retirement our report below to learn how

Global Sales Business Valuation