They say timing is everything. When it comes to selling a business, the idea of “timing” can take on several meanings. It can mean the actual length of time it takes to complete a sale from start to finish. We have written previously about the four phases of the sale process and their timing here and here. Timing can also pertain to market conditions and other factors that can either work for or against a business owner when they decide to market their company for sale. The factors that influence the timing of a sale are both in and out of an owner’s control, and in this context, timing can either be an owner’s worst foe or their greatest ally. Finally, timing can mean the actual calendar time of year that an owner may choose to market their company for sale. It is that definition of timing that we will focus on in this post.
Business owners will often ask the question: Is there an optimal time of year to market a company for sale? The short answer is yes. The best times to start marketing a transaction are right after the first of the year through the first quarter or so and right after Labor Day. Why is that? During the first part of the year, buyers have ambitious plans for the year ahead. They are ready to come roaring out of the gate, evaluate all of the new M&A deals that are coming to market, and engage the sellers that pique their interest. It is the same with Labor Day — buyers are back in full gear after the summer lull and anxious to achieve their acquisition goals for the year if they have not done so already.
Conversely, there are times during the year that are less than ideal to market a business for sale. For example, the months of July and August are a challenging time of year to bring a business to market because it is traditionally vacation season. Therefore, it can take longer than normal to reach all of the buyer candidates, which can cause unwanted delays in transaction timing. Thanksgiving to New Years also tends to be a weak time of year to begin marketing a company for sale since the buyer candidates may be focused on closing pending transactions with less of a focus on new opportunities. In addition, buyer candidates are preoccupied with the holidays, family obligations, travel, and all the inherent distractions that tend to be present as the year winds down. In general, no one’s head is really “in the game” with respect to new opportunities in the timeframe between Thanksgiving and January 1, so it can be tough to begin marketing a company for sale during that time of year.
All that said, there is no “bad” time of year to market a company for sale on a limited basis, say, to two or three buyers, or to work on a deal with a specific buyer who may have already committed to the process. The foregoing times are simply the times of year that in our experience are either well- or ill-suited for owners to bring their business to market on a broader scale.
Now that we have addressed the best times of year — and the less-than-optimal ones — to market a company for sale, let us consider the best times to close a deal. We typically advise owners, “when you’re ready to close, close.” Other than as described below, there is no “best” month to close a transaction. Many owners and buyers think that they need to close a sale on a month- or quarter- or year-end because it is convenient from an accounting or fiscal point of view, for example. However, delaying the consummation of a transaction, even by a few days, only invites the possibility that a plethora of bad things can happen —i.e., the buyer can back out; financing can fall apart; an important customer can leave; key employees could leave; a facility can have a fire; an unforeseen macroeconomic event can abruptly alter the market environment, etc., any of which could “spook” the buyer and put the transaction at risk.
Notwithstanding the foregoing, there may be a compelling tax reason to close by the end of the current year or delay the closing until the beginning of the next tax year. Closing by the end of the year often implies accelerating the transaction timetable. Closing at the beginning of the next year often implies delaying the closing. Accordingly, the risk/reward proposition must be compelling to delay the closing until the next calendar year and to subject the transaction to the attendant risks.
Owners who find themselves in a position where the immediate timing is less-than-desirable to begin marketing their company for sale should take a step back and instead, use the time constructively to make sure proper preparations have been undertaken in advance to get the company ready for sale. Preparation means something different for every company, but in general, it may range from accounting to tax matters, determining “quality of earnings” (“QOE”), preparing annual budgets and rolling 3-5 year projections, simplifying the organizational structure, honing the sales pitch, and formalizing odds and ends that are unique to each company. These tasks often take longer than planned, so undertaking these tasks early can avoid potential delays in launching the deal during the ideal marketing windows.
When it comes to selling a business, timing truly is everything. Whether or not an owner can succeed at achieving their objectives for a sale may depend largely on timing, which can work for or against them. Even the dates on the calendar matter, so owners should consider when they plan to market their company for sale and “reverse-engineer” the preparations to ensure that the deal goes to market at the most optimal time.
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