To sell your business now or later – that is the question

To sell your business now or later – that is the question

Throughout the life cycle of a business, private company owners often contemplate the biggest decision they will ever have to face – whether or not they want to sell and, if so, when is the right time. The dilemma of “sell now versus sell later” continues for many owners in today’s rapidly changing world.

When wrestling with the decision to sell now or later, there are several key factors owners should consider and analyze to help them reach a decision for their company and its stakeholders.

Selling Later

The following characteristics place business owners in a good position to continue growing operations and consider selling at a later date:

  • Company’s owners and management have a five-plus year runway, solid strategic plan, healthy balance sheet and an organization built for profitable growth
  • Business is growing at a greater rate than the nation’s GDP and its EBITDA is expected to meaningfully increase, which will lead to a higher sale price in the future
  • Company’s estimated enterprise value (headline sale number) and net debt free/cash free after-tax and fee proceeds (the net cash amount owners walk away with) will be meaningfully higher in the future than today
  • Company can withstand an economic downturn and the owners are willing to delay a sale as revenue and EBITDA recover to current levels

Selling Now

On the other side of the spectrum, there are several internal characteristics and external market indicators that can be a positive sign for business owners to consider selling now:

  • M&A and debt markets are robust with active strategic and financial buyers looking for platform or bolt-on acquisitions
  • Company’s owners and management have less than a three- to four-year runway
  • Stocks and M&A markets and EBITDA multiples are strong
  • Potential net after-tax proceeds for the company’s owners are at, or near, a target liquidity goal
  • Company will require meaningful management hires or investments in the near term to achieve growth plans
  • Current federal capital gains tax rate and immediate asset acquisition cost write-off laws are favorable but will expire unless they are permanently implemented
  • Changing industry dynamics with active consolidators, including many private equity groups
  • Perceived risks of continuing to operate the business profitably outweigh the benefits of future potential growth or stability of cash flows

Meeting with an investment bank

As private business owners assess the decision of selling their business now or later, it’s important for them to make a well-informed and well-reasoned decision. They should consider meeting with an investment bank to discuss essential matters, including the following:

  • Current goals and objectives
  • Potential alternatives, including maintaining the status quo growth plan, growing through acquisition, raising capital to pay a dividend to the owners or selling now versus selling later
  • Current and expected M&A and debt markets
  • Company’s estimated enterprise value and owners’ expected net after-tax proceeds from a sale
  • Potential strategic and private equity buyers for the business
  • Overview of the sale process and length of time to complete a transaction (typically six to nine months)
  • Steps the owner could be taking now to prepare and position the company for a potential sale in the future in order to maximize potential value

To view more on this topic or learn how Baker Tilly specialists can help, contact our team.

Michael Milani
Team meets to discuss strategy
Next up

Pennsylvania adopts Corporate Governance Annual Disclosure (CGAD) filing requirement: a quick guide for your journey to compliance