Perhaps you are a founder/owner of a high-growth tech company that needs capital and other resources that a larger company in your sector could provide? Perhaps you own a well-established business and are considering retirement? Perhaps you’ve recently been approached by interested buyers in your industry? All of these are valid reasons you may be pondering whether now is the right time to sell your business.
Regardless of your reasons, here are some things you might consider first before diving into the deep end:
- Current M&A Environment – By all accounts, including our own observations, M&A has come roaring back since the holidays. Whether it is market challenges and capital constraints in scaling one’s business, anecdotes of competitors getting acquired for big dollars, or fear of one’s mortality and the desire to cash out, business owners are eager these days to take the necessary steps in preparing for and selling their businesses. And the good news is that strategic buyers are actively seeking quality acquisitions – whether to fill a technology or team gap, to access coveted customer relationships, or to add a new division in a complementary business sector.
- Valuations – In 2020, despite the fall in number of M&A deals closed, surprisingly valuations for M&A deals that did get done, compared favorably to pre-COVID sale valuations in 2019. This was generally true across most business sectors, with multiples paid on revenue and earnings actually increasing in certain hot areas such as aspects of software and biotechnology / healthcare. This was particularly evident for companies valued between $20 to $200 million (sources: CapIQ and Dealogic).
- Taxes – As of January 20th, we have a new administration in the White House, and Democratic control of congress. It is a given that the Trump tax cuts will be modified, per the Biden plan released last fall. The question is when. The Biden administration has many pressing issues to deal with such as COVID and re-energizing the economy, so it may be later in 2021 or even 2022 before tax changes occur. We are advising business owners that if they are considering selling their business sometime this year or next and are concerned about capital gains and other tax changes on the horizon, they are best to begin preparing now to take their company to market soon, aiming to close the most optimal deal by mid-year or earlier.
- Preparation – One of the critical first steps in selling a business is thorough preparation, the foundation needed to launch a successful sale process! Buyers need accurate financial and other information to assess your business and make a bid. Do you have accurate financials for the past few years? A credible forecast with assumptions? Legal documents (e.g., shareholder, employment, IP, etc.) in order? For more details on preparation, and steps you need to take, please refer to: https://www.sivaladvisors.com/process/.
- Positioning – Here is where the right M&A advisor can make or break your deal. How your business is described to each type of prospective acquirer, stressing important nuances to appeal to different types of buyers, is mission-critical to getting the highest bids! It is the persuasive aspect of the sale documents. Thoughtfully probing and understanding your business’s strengths and creating often multiple variations of the pitch documents for these different groups of buyers will pay huge dividends.
Still have questions about selling your business in 2021? Give us a call or email, we would be happy to have a confidential discussion. Click here to schedule: https://www.sivaladvisors.com/contact-us/.
By Jan Robertson, Managing Partner & Co-Founder SiVal Advisors, a Silicon Valley-based technology M&A firm, with national and global reach.