Timing the sale of a company to achieve a seller’s objectives is tricky, to say the least. Timing can be a business owner’s greatest ally or their worst enemy, and it is usually the latter. As the saying goes, “timing is generally not a seller’s friend.” Moreover, the longer the sale takes to close,the greater the likelihood that something bad will happen, the terms will deteriorate,or that the deal will not close at all.
As we have written previously, the factors influencing the timing of a sale are both in and out of the owner’s control. Internal factors that are within an owner’s control include solid operating results, a healthy customer base, developing and bringing new products to market, etc. — in short, ensuring the company is running like a precision timepiece. Conversely, external factors that owners cannot control include macroeconomic factors like a recession, the slowing or drying up of a specific area of the company’s market, regulatory changes, a fire or a natural or environmental disaster that causes damage to inventory or property, or a terrorist attack. External factors outside a seller’s control might also reflect conditions that are endemic to their industry or market, such as industry or product cycles, which typically go through phases: early adopter, growth, maturity, and decline.
From a buyer’s perspective, it is generally best to acquire a company during its growth phase in order to maximize its future value. However, from the owner’s point of view, it is more advantageous to sell in the later stages of a company’s growth cycle to reap the most value. With that said though, owners should consider selling their company before the operating results have crested in order to leave some upside for the buyer.
Savvy sellers pay careful attention to the timing of these economic, industry, and individual business cycles in order to maximize returns when bringing their company to market. Generally, a deal that commences and is consummated during an upswing in economic, industry and market cycles is likely to pan out well for a seller. Conversely, a transaction conducted during a downturn in any or all of these cycles will typically yield less-than-favorable results.
We often say that business owners should be prepared to sell their company on a moment’s notice and when “the stars are aligned.” Waiting to prepare the company for sale until the time is right to sell it though, could create just enough delay for an unfortunate event to occur that could derail the transaction. “Perfect timing” is often fleeting, and the window for a deal to get done can close quickly. For instance, we have worked on many transactions that, had they closed even a month later (or a weekend later for that matter), would have turned out quite differently, or would not have closed at all.
Timing a sale can also be a waiting game. We recently worked with a client who waited seven years before deciding to sell their company. The business was interest-rate sensitive, and when we first began talking with the owner, the company’s market and industry were at an absolute bottom. Over the next seven years, however, they took advantage of internal factors within their control to build the company’s assets. In addition, external to the business, interest rates rose. Thus, when the owner was ready to sell, the timing of both internal and external factors influencing the sale of the company converged, resulting in a successful transaction. Had the owner tried to sell the company any earlier, chances are, the timing and circumstances would not have been as favorable. In short, when it comes to selling a business, timing — and patience — matters.
That said, timing is often not an owner’s friend, and time is always of the essence when it comes to processing and completing a transaction once the decision has been made to sell the company. Delays can be costly since only bad things typically happen as the sale process lengthens, i.e., operating results deteriorate, a key employee resigns, the company loses a customer, etc. Deal making is about momentum and when deals get strung out or slow down, for whatever reason, it can be detrimental to the deal’s momentum, lengthen the sale process, increase the odds that something bad will happen, and possibly derail the sale
In short, there should not be anything leisurely about the sale once the process begins. However, while it can feel very much like everything pertaining to the transaction needs to be done yesterday, there should not be anything hasty about completing a sale, either — it is important for the seller to be responsive and maintain momentum while assuring that the deal proceeds thoughtfully and methodically. Getting the timing of a sale right is a delicate dance that often requires sure footing, quick maneuvers, and flexibility to quickly change direction as necessary.
A successful sale doesn’t happen by chance, but happens by careful planning, persistence, and an instinct for proper timing. By paying keen attention to the timing of the deal relative to factors both internal and external to the business and maintaining momentum to consummate the transaction when the odds are in their favor, sellers can maximize their opportunity for a rewarding exit.
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