JoelStromFor business owners considering selling in 2016, CKS managing partner Joel Strom shares insight on the future and looks back to 2015 for a frustrating yet valuable “lesson learned.”
Is 2016 a good year to sell a business?
Let’s start with 2015 which was a great year for sellers because, coming out of the recession, there was money searching for deals. We saw this on the private equity side where investors were actually under pressure to spend money, after not deploying funds for seven or eight years. And strategic buyers looking for growth opportunities in specific niches (and “bolt ons”) were also primed to spend because they’d been so cautious in previous years. Companies that came through the recession strong were, and continue to be, highly attractive to the right strategic buyer. Turning to 2016, the market is as viable, maybe stronger even, this year. We can’t predict what’s going to happen in 2017, with global instability and, of course, the upcoming presidential election, and other unknowns. So, from a seller’s standpoint, if your company checks the boxes in certain key areas, now is an opportune time to sell.
What marketplaces do you predict will have the most activity?
We are fielding financial and strategic inquiries in manufacturing and logistics (warehousing and distribution, for example). Essentially, industries that are fairly stable, where there’s consistent need. In general, buyers want companies with a specific, identifiable brand or product – something that is concrete and distinguishable. For example, a company that makes widgets for airplanes, or a technology for a common medical device or something else that is unique
How does a business owner know he or she is ready to sell?
Besides financial and marketplace considerations, there are two key emotional intangibles. One, you must be mentally ready. So many owners think they want to sell but aren’t prepared for the emotional upheaval. We’ve seen owners go through the five stages of grief and loss. They have to be truly ready to walk away. The other part of this is owners need to know that the time to sell is not in a moment of frustration, not at the point when they’re saying “I can’t deal with this anymore.” Ideally, the business should be at the point where it’s approaching its peak. Think like an athlete, and leave strong.
Tell us about one of your most memorable projects in 2015.
This deal will sound familiar to anyone who has bought a house. We had an active investor intent on purchasing a business in the tech arena. The seller was eager to sell. After the letter of intent was signed and both parties gung-ho to close, owner and buyer egos came out during the due diligence period and the tug of war between perceived value came out in full force delaying the close month after excruciating month. It’s akin to getting a home inspection right before a closing and finding 11th hour “surprises” that devalue the sale. Our advice? Sellers need to conduct their own “home inspection,” with a neutral third party of course, before they go to market. We tell sellers to look at their business like a buyer would. Seems obvious, right? But when you’re talking about their blood, sweat and tears over a period of 20 or more years, it’s not so easy. We get it. And that’s why we’re there to help manage the process.