Waiting for Gold

This week we’re told that Q1 2010 GDP was up 0.2%. Evidence of recovery in the spinning hands of some, yet for others a sure sign we’re in the economic Alton Towers and riding the dowwwn-sliiide of a double dip recession. For the business owner deferring the sale of his business for 12+ months, there is a brewing dilemma; “How long do I wait for the economy to turn before I sell?”

I’m no Milton nor Keynes, but even my basic grasp of economics indicates we’re in for a prolonged spell of bumpy weather. This morning’s headlines make it clear that politicians are avoiding the truth about our deficit repayments and therefore it’s equally clear, that we are having to adapt to a “new norm” with business owners needing to consider the impact on their potential exit strategy.

What are we seeing at the business sales coalface? Good businesses continue to sell at pretty much the same level as before, indeed those performing well remain particularly attractive with sale multiples proving consistent if not occasionally enhanced due to the reduced availability of good quality. Funding of SME transactions remains challenging and therefore the primary change of emphasis for most sellers has been the need to be more flexible about the terms required to get a deal across the line. That said, the market place will always find profitable, well managed (owner-lite) SME’s attractive and owners of such businesses should not unduly delay any sale process.

However, selling a struggling or asset poor business has become more challenging. Even if a willing buyer is found they often have to convince funders, who might claim to be “open for business” but don't appear to be quite so open for transactions with much of a risk profile! This is unlikely to change for some time so sellers of such businesses need to become more realistic about their price expectations and/or adopt a strategy that enhances the value and appeal of their business. They need to look at all options including strategic partnerships, outside investment, developing MBO/MBI options and changing their trading emphasis towards growth sectors – all options being considered by some of our clients who might previously have hoped for a straight forward trade sale. If these considerations are too long term then it’s a question of good preparation, a strong marketing campaign and aforementioned flexibility about terms and price.

Bottom line is that owners cannot keep putting off selling in anticipation of a turn in the economy. The alternative of waiting too long might help to destroy value as swiftly as any crunched credit - the owner loses motivation, investment dries up and the competition take advantage. Waiting for or expecting a pot of gold is the wrong strategy. Business owners need to keep the exit process dynamic and not rely on a return to the good old days. Dynamism and realism are the key ingredients to maximising and protecting value in the “new norm”.