Wondering when to sell your business? You’re not alone. A variety of factors, both in and out of your control, play into the decision of selling your business at a particular time.
Although it’s impossible to predict the future, you can make smarter decisions about when to sell your business, based on the information available to you and the trends that you observe.
In our previous article, we discussed the different factors that buyers are looking for at each stage of your startup: early, middle, and late. This article will continue the discussion by going over the different timing considerations for when to sell your business: the larger M&A market, your company’s industry or sector, and finally your company itself.
1. The M&A market
Perhaps the most important timing concern when selling your business is the robustness of the M&A market itself. Broader macroeconomic trends, which may have nothing to do with your industry or company, can easily put a damper on potential buyers’ enthusiasm.
To understand just how quickly things change in the M&A market, just look at the dot-com bubble of the late 1990s, or the Great Recession that began in late 2007. Even minor variations in the M&A market from year to year can have significant impacts on a company’s final selling price.
When the M&A market shifts, the first thing that adjusts with it is a company’s valuation. Smaller valuations mean less likelihood of M&A activity, which can postpone or indefinitely delay a potential exit.
Other factors that can impact the M&A market’s viability include:
Ease of access to capital: Low interest rates mean that it’s easier for buyers to enjoy access to the capital they need for M&A deals.
Cash on balance sheets: When buyers have more cash at hand, it’s easier to execute an M&A deal.
2. The industry
In addition to M&A trends in general, potential sellers also need to pay attention to M&A trends in their particular industry. For example, as of 2019, many parts of the technology sector are very fragmented, making them a prime target for M&A activity.
Many companies are afraid of being the “last one at the dance,” left without a buyer while all their competitors have already been acquired. If your industry or sector is trending toward consolidation, it may be a good sign to start looking for a buyer before you get left out in the cold.
Other industry-wide factors to consider include broader growth trends and future predictions. If your industry is projected to expand significantly over the next several years, it may be worth it to keep your ambitions of selling in check for a little while.
3. The company
M&A activity and particular industries go through cyclical patterns of growth and decline. Individual companies, too, follow a well-established path up until acquisition, passing from the initial and growth phases before becoming mature prospects for M&A activity.
Understanding when to sell your business requires an honest assessment of your company’s stage in this life cycle, including growth prospects and financial margins. Early-stage startups with less history and fewer customers will need to make a more convincing case for acquisition—for example, a killer app or a rich talent pool that companies would rather immediately acquire than spend effort developing in-house.
(Curious about what buyers are looking for at each stage? Check out part 1 of this article.)
Before approaching potential M&A buyers, ask yourself the following questions:
How long have you been at it? Startups at different phases will need to sell themselves differently and consider different types of buyers.
What do you expect for the future? Where do you see the company going in the short and medium terms? Does the business have significant growth potential that would make it more valuable to postpone an acquisition?
How realistic are these expectations? Are there a lot of competitors in your industry that could complicate your plans? Are there potential issues on the horizon for your industry as a whole?
In this two-part article, we’ve discussed some of the most pressing issues surrounding the question of when to sell your business. Looking for more information about whether now is the right time to sell your business? Click here to watch our recent webinar with Sampford Advisors, “Trends in Tech M&A.”