Up until 2007, most businesses were going up in value so timing was largely irrelevant. But after 2008, when we have seen businesses such as a product manufacturer for the construction industry plummet from a £60m enterprise valuation to a £10m net asset value within six months, timing has become key.
Factors to consider when assessing the right timing:
- Shareholders’ valuation expectations;
- Health of the transaction and buyer market;
- Uniqueness of any products or services that you offer; and
- Regulatory or legislative changes that might be influential.
Shareholders’ expectations are key – assess the valuation they are looking for and how long it will take, what investment strategy is needed and how realistic it is to develop the company to a position where it will command the multiples desired.
The state of the deal market in your sector has a strong influence on price. In 2006/2007 we sold six recruitment businesses over an 18-month period. We did not sell another until 2011 as the market was too difficult and there were few potential buyers.
Sectors become hot for a period of time with the new best product, service or technology. But often the shelflife of these trends is short. Any business with social media, digital data and group buying in the title is currently attracting high multiples. If a company misses the wave, it can be costly. A couple of years ago, a business in image libraries held out for higher profits but then missed out on the multiples paid by Getty Images, which was buying up the sector.
Certain markets attract buyers at specific stages in their evolution. For example, in payday lending, when the US changed state laws that made it less profitable, the US players looked to the UK. They had a choice to buy or build. Build would take 18 to 24 months, hence there was a two-year window for our client, Express Finance, to position itself and be sold to a US buyer, which was completed successfully with its acquisition by Dollar Corp.
Finally, always remember that although the above factors are all important, the critical consideration is the state of your business. If it needs further development to obtain the best price then typically this should be completed, but always remember not to lose the moment. If there is a strategic buyer willing to pay a good price then the buyer’s timing should dictate the sale – not yours. That’s why pre-planning ahead of sale and being “exit ready” so you can take advantage of such opportunities are so important.
Caroline Belcher is a partner at Cavendish Corporate Finance.
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