M&A is Back: Now What? (OPINION)

In a recent edition of the Northwest Arkansas Business Journal, editor Paul Gatling declared that “M&A is Back.”

As an M&A advisor since 2006, I wholeheartedly agree with Gatling’s assessment. Given that market conditions are good, perhaps the next question is: what should business owners do about it? If you think about selling your business one day (i.e. cashing out and riding into the sunset), there are four components to timing a sale. Those components are the overall condition of the M&A market, the health of your industry, the success of your business and your own personal readiness.

As Gatling explains in his op/ed, 2015 was indeed a record-breaking year for M&A. While megadeals among public companies grabbed headlines, owners of privately held companies were quietly enjoying valuations not seen in years. According to GF Data Resources, valuations for deals with a total enterprise value of $100 million to $250 million hit 9.1 times EBITDA, up from 7.8 times in 2014 and 7.5 times in 2013. Not only was it a great time to sell, buyers were also paying more for good acquisition targets.

While most of the research I’ve read points to 2016 being a similarly “frothy” market for doing deals, every marketplace is shaped by the same reality. Just as the window of opportunity opens, it will eventually begin to close. Anyone who thought they were going to sell a business between 2009 and 2012 will tell you that the Great Recession put the kibosh on even the best-laid exit plan.

The overall market for selling a business may be good right now, but if your industry is in the doldrums you could get left out in the cold. Hindsight (and experience) gives me the proverbial 20/20 vision, so here it is: If you own a business in the oil and gas industry, your window of M&A opportunity closed in August of 2014, when oil prices began their historic descent. While some owners were selling for peak prices last year, many in the oil and gas industry were simply trying to stay alive. When the M&A market will come back in their industry is anyone’s guess, but it won’t be anytime soon.

One of the ironies of selling your business is that, from an internal standpoint, the best time to sell is typically when you’re least likely to part with it. It can be difficult to think of your business as an investment, but it is. In fact, most business owners have close to 85 percent of their net worth tied up in the equity they’ve built in their business. As with any investment, the best time to sell is at the peak. The value of your business — and buyer interest — will be high when your business has shown several years of consistent growth and profitability, with additional growth projected in the near future. The next time you exclaim that it was “the best year on record” at your business, will you also be thinking that it would be a great time to sell? Probably not.

The final timing element is completely within your control as an owner, although it’s still tough to nail down. I’ve been introduced to several companies over the years that had the three timing elements listed above firmly in place, but the owner wasn’t ready to let go.

Great entrepreneurs share a number of characteristics, including the drive to achieve, tolerance for risk, and the need for control. Unfortunately, some of the same traits that make you a successful business owner can work against you when it comes to planning and executing a sale. You’ll need to adopt the right mindset in order to sell your business.

It also helps to have a plan in place for what you will do with your life post-sale. Another characteristic that many entrepreneurs share is deriving much of their identity and self-worth from owning a business. Big life transitions tend to go much smoother when you have something to look forward to. Without addressing your personal needs first, financial and otherwise, selling a business can quickly go from a crowning achievement to an existential dilemma.

Financial advisors warn us not to try and time the stock market. Timing the sale of your most valuable asset — your business — is tricky, but it can be done. Four planets need to be in alignment: the market, your industry, your business and you. Regardless of what phase you’re at as a business owner, there’s no time like the present to start planning for a successful sale. 

Barbara Taylor is the co-founder of Allan Taylor & Co., a boutique mergers and acquisition firm in Bentonville. She is a regular contributor to Forbes.com and a former New York Times blogger. You can follow her on Twitter @ballantaylor or visit her company website.