There is no denying that multiplies have increased, and greater leverage continues to be available, creating a very strong cycle for middle market M&A. However, all cycles come to an end. There is no way of predicting how long this positive window will last.
“Middle market M&A activity in 2017 has been more active than we have seen in the past couple of decades,” said Alan Scharfstein, CEO of the DAK Group, also the author of the Business Owners Guide below.
Strategic buyers are sitting with a record amount of cash on their balance sheets. As organic growth has been difficult to achieve, strategic buyers have been very active in the acquisition market. Private equity buyers who have raised billions of dollars are seeking acquisitions. They are the major players in the market today both in finding platform companies or making bolt-on acquisitions.
Scharfstein said that half of the deals DAK is doing today are with non-US buyers. “As much as we are concerned with where our economy is heading, those non-US investors still see it as the safest economy in the world and want to be invested here,” he said. “Many of the non-US buyers we work with are strategic buyers who are looking for a point of entry to the US and middle market companies can very much represent that point of entry.”
For CEOs and business owners who want to take advantage of this seller’s market, exit the business and earn the maximum value for their company here is a sneak peek of the DAK Group’s 12 Critical Steps to Prepare Your Business for Sale.
- Be Ready to Sell at All Times
Don’t wait until you’re fully ready to sell to optimize efficiencies, you might lose your greatest opportunity to build value. Look for ways to increase earnings and maximize profitability now so you will have an established track record by the time you go to market. Focusing on operational efficiency now, you’ll build value at the closing table.
- Communicate Your Vision of the Future
Buyers are interested in potential—they buy the future, not the past. You must be able to paint a compelling and defensible picture of your company’s path forward. And don’t forget to mention the opportunities that will propel its growth in the years ahead. Do not leave it to the buyer to understand your company’s vision for the future. You cannot count on them to do the work of selling themselves on your business.
- Understand Your Business Value & Value Drivers
Most business owners don’t understand the potential value of their companies. Factors like multiples of revenue or EBITDA can be helpful in establishing some benchmarks. But they are far from conclusive when it comes to defining market valuations. Buyers are often willing to pay higher prices based on their economics, synergies, specific goals or even the reputation of your business. It is important to understand all of your company’s value drivers to avoid leaving money on the table.
- Avoid Surprises – Self Due Diligence
Any serious buyer will perform extensive due diligence prior to consummating a transaction. Any surprises at this stage will have the serious potential to negatively impact a deal. You can avoid any surprises by conducting your own due diligence process with your team of advisors before bringing your business to market. Identify any and every possible issue that may be perceived as a negative through rigorous self-assessment.
- Keep Your Eye On the Ball
You need to keep running your business and doing the things you’ve been doing to make your business successful. It’s important that you continue to run your business as though you plan to own it forever, especially during the sale process.