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TIMING IS CRITICAL TO A SUCCESSFUL TRANSACTION When considering whether it is time to sell there are five key elements to examine: 1. Are there buyers? 2. Is your business trending up or down? 3. Is your business ready for others to view? 4. Is your business financially stable? 5. Is the business at the right point in its business cycle? ARE THERE BUYERS? May seem like an obvious question but this is often overlooked by sellers as they are thinking about selling. At RLD we have seen times when the market place is overloaded with buyers and times when it seems all buyers have gone underground. This herd instinct is understandable in a way but also confusing at times. Buyers are buying the future and often the "collective" wisdom is that the future is to unsettled to make an informed decision. That is when buyers will decrease their acquisition activity and wait for clearer signals from the market place. At other times the buyers will all agree that the future looks bright and will crowd the market place looking for quality deals. The critical aspect for the seller is to recognize when buyers are active. When buyers are active and abundant they will drive up values; when they are being extra cautious they drive down values. Deals are done in the down periods but at less value than the higher demand periods. Recognizing this timing and matching it with your decision to sell adds greatly to the value of your company. How do you know when buyers are active? At RLD we know based on the inquiries we receive from buyers and the multiples they are willing to pay. We are talking to buyers everyday so we get a "feel" for the current market place by listening to the tone of these conversations. As a seller you can contact companies such as ours or others and ask about the market. Most people are willing to discuss the market conditions that exist. Also you can look at the projected trends in your market-what are industry experts expecting to happen in the future. Buyers are driven by future expectations much more so than historical numbers. Another way of knowing the activity level of the market place is to track the Private Equity Groups (PEG) that are active at any given time. This is private money pooled for the purpose of doing acquisitions, usually in one industry. The number of these groups and the size of the money pools available is a strong indicator of what the market is anticipating. IS YOUR BUSINESS TRENDING UP OR DOWN? Short-term trends such as month to month are not deal killers or key elements to buyers; however short-term trends that run longer than one month will cause buyers to pause. This is all driven by the intense focus on the future-buyers are buying the future; not the past! Trends can be an indication of that future performance. Buyers are looking for performance predictability. Very volatile numbers can confuse buyers both up and down and cause concern. A buyer is trying to forecast the future of the acquisition target and as such is looking for anything to give them an indication of what that future will be. However; buyers in the Power Infrastructure industry understand that there are ups and downs by the nature of the business. Normal business fluxion is expected; unusual or extreme changes can be a problem. Obviously the best situation is for there to be a strong positive trend in place as the business goes on the market. But the seller should not be overly focused on month to month ups and downs. The more important aspect is strong future indicators; such as customer stability, back-log, pending contracts/bids, year to year EBITDA stability/growth and employee/management stability. IS YOUR BUSINESS READY FOR OTHERS TO VIEW? Most business owners are proud of their businesses and do not give much thought to how someone else might look at the business. A business owner should take some time and try and view the business the way a seller would. Do you have good back-up management in place if you (the owner) were not there? Do you have good financial (accounting) staff in place to function under a new owner? Is your equipment in good shape? (The equipment is not expected to be new; but should be a mixture of age and utility with little underutilized equipment.) As a seller you should give thought to due diligence-what does it mean and are you ready to provide answers and documents to respond to the normal requests in due diligence? IS YOUR BUSINESS FINANCIALLY STABLE? This question is much like the trend question but in a different perspective. If your business is on the verge of bankruptcy your chances of selling are slim. Even if your business is not on the verge of bankruptcy but is operating at a loss you may not be able to survive long enough to sell. Most sellers of businesses in trouble will not make the price/terms concessions they need to make in order to sell their businesses. Always remember you are selling the future, so if your business is losing now you are asking a buyer to take a substantial risk that it will continue to lose at the current, or worse, rate in the future. To take that risk requires incentives in the form of a low price and maybe good terms. In most cases a financially unstable business will not be able to find a buyer and negotiate a deal before it is too late. This is especially true with small businesses that usually do not have access to resources to keep the doors open while looking for a buyer. So once again an obvious statement; the best time to sell your business is when you have financial stability. This is somewhat different then just profitability or good EBITDA numbers. It means you have adequate working capital for the growth and financial performance of the business. It means you have adequate resources (equipment, human resources etc.) to support the immediate trends lines of the business. There are no surprises for the buyer related to your financial stability-buyers abhor surprises. IS THE BUSINESS AT THE RIGHT POINT IN ITS BUSINESS CYCLE TO SELL? Every business has a certain life cycle. Below is a typical chart of the life cycle of a business that is often seen in management textbooks. This chart reflects a major mistake made by people not in the business of selling or acquiring businesses. They show the end of the business cycle as one involving an exit of the business. If that is an exit to a new management team (family succession) or a liquidation of the business assets this may be true. If the exit strategy involves selling the business; it is a mistake. Chart 1. As we have said a buyer is buying the future. Based on chart 1 above there is an assumption someone would buy the business at the end of its life cycle-obviously this is not true or if it is true the buyer will not pay the highest price for the business. Many business owners will tend to follow this cycle more or less unknowingly. They will time the sale of their business based on their personal circumstances; such as retirement or health concerns. That will not maximize the value of the business. The perfect time to sell a business is when the future of that business looks it brightest. Common sense will tell us if the buyer is buying the future than the business owner should sell when the future looks the best. Chart 2. Chart 2 give us a graphical representation of when it is the best time to sell. In a nutshell the best time to sell is when growth is on the horizon. This maximizes the value and will attract the most buyers. Now obviously our chart lays this out as a simple task of picking a point on the graph line-a real world business is much less clear. The unknown is the future. If your business is experiencing success and growth there is a tendency to want to wait so you can benefit the most from that current trend-but if you wait until you know where you are on the chart it can be after you have reached the maximum value and gone beyond. We have told many buyers the best time to sell is when you would just as soon keep the business because it is doing so well. CONCLUSION. After you have examined these five areas you should have a much better idea on whether this is a good time to sell or not. In many cases a close examination of your business and yourself will reveal that it is not a good time to sell. The best thing to do at that point is to establish an objective of selling your business in the future and began the work to put your business in a better position by that time. We only get paid if a deal happens. There is no motivation for us to try and fool you into hiring us-and there is no motivation on our part to take on a client we cannot sale. There are many factors that lead to a successful transaction and we work with our clients to help them identify if it is the right time for them to sell-don't wait too long and miss out based on bad timing.

When is the best time to sell?

Update Current market conditions have changed many aspects of timing. The coronavirus pandemic has impacted what was “normal” and some of what was true before is not necessarily the same. Buyers will understand the unsettled nature of the last few months and will overlook short-term disruptions. Buyers will be focused on prior history and long-term prospects. The elements mentioned in the article are still valid regarding the cycle the business was in before the current crisis. The buyers we are talking to are mostly interested in opportunities to grow their existing organizations in both the short- term and long-term with an emphasis on quality well run companies with good prospects for the future. Timing a transaction still needs to be analyzed but with an understanding of the overall market and how the return to “normal” will impact a specific business transaction. We are advising clients to explore options now if they are ready. Based on our conversations we believe the buyer market is ready to begin discussions on transactions