Punching Out! Selling a Company—Seeing it as a Triumph, Not a Defeat

Somehow, there is a still a stigma that selling a company is a negative for the owner. Many people think that there must be something wrong, otherwise, they would not be selling. In reality, exiting a business should be looked at as a triumph for the owner, not a defeat. 

In both the PCB and PCBA industries, the average age of ownership is certainly around retirement age, so many owners tend to be "old-school." Almost always, the first thing I am asked by a buyer when I am selling a business is, “What’s wrong with it?” Even if the business is growing and making good margins, many buyers think that the owner must be in bad health or that the numbers are completely fudged. However, the best time to sell is when the business is doing well. The worst time to sell is when you have no other options. 

Many younger business owners, especially in the tech industries, start a company with an eye to selling within a certain number of years. If the business takes off, great, and they are ready to sell at any time. If the business fails, they’ll start another one, or they may pivot two or three times before hitting a winning strategy. 

The old-school approach is for the owner to be 100% tied to the business, both financially and personally. The owner has a massive office with lots of trophies, a big parking space, and plenty of yes-men and assistants to puff up their ego. That might feel fantastic, but there is a cost to those perks (and remember, at a sale the owner gets 4−6X adjusted EBITDA, so those perks are even costlier when applied to the company’s valuation). If this is important to the owner, great; but just realize that it makes it more difficult to sell, and there are costs associated with this strategy. 

The best way to ensure that selling a business is a triumph is to prepare. Preparing is a good practice in general, and is good for the business. Some of the issues we have seen that delay deals are old liens on equipment, environmental papers/documentation not in order, trusts/charitable donations not in place, or, as it turns out, the owner’s spouse actually owns the business, etc. 

What if a great buyer appeared out of the blue tomorrow? If you are not ready, that buyer may move on to the next prospect. Or, by the time your business is ready, the economy turns bad or a large customer leaves (or that buyer gets acquired themselves). In those cases, the cost of not being ready can be enormous. 

Mental preparation for the owner is very important: what do you want to do after retirement? Many buyers want the owner to stay for a transition period, even for several years. A private equity or other financial buyer may want the owner to maintain an equity stake, and not sell for 3−5 years, or more. 

Consider selling a business to be a triumph, both personally and financially. If you wish to stay in business, perhaps you can stay on your company’s advisory board, or join other industry groups or boards. Make sure you have a plan for retirement—this will not only keep you active after selling, but will also help you get through some of the rough spots during the deal process. Selling a business is a gateway to the next stage in life, and just imagine what you can do if you did not have to run weekly staff meetings! 

Tom Kastner is president of GP Ventures, an M&A advisory services firm focused on the tech and electronics industries. To contact Kastner or to read past columns, click here.

Back

2017

Punching Out! Selling a Company—Seeing it as a Triumph, Not a Defeat

04-25-2017

Somehow, there is a still a stigma that selling a company is a negative for the owner. Many people think that there must be something wrong, otherwise, they would not be selling. In reality, exiting a business should be looked at as a triumph for the owner, not a defeat.

View Story

Punching Out! 10 Ways to Increase the Value of Your PCB/PCBA Shop

03-22-2017

I have worked with a wide range of companies in the PCB, PCBA, and other tech and electronics sectors. Through the years, I have developed some ideas on how companies can improve their valuation. Some of these ideas are simple and involve little cost, other ideas are more long-term and involve more effort or investment.

View Story

Punching Out! When Should I Call an Investment Banker?

02-20-2017

The quick answer is ASAP. Even if you are not considering the sale of the company for 5−10 years, it is best to be educated and prepared. Give your advisor (or a few advisors) a call to discuss what can be done to get the company ready for a future sale. The worst time to call an i-banker or business broker is when you are forced to sell due to poor performance, health issues, pending bankruptcy, or dispute with a partner or manager.

View Story

Punching Out! Types of Company Buyers in the PCB and EMS Sectors

01-09-2017

Mergers and acquisitions in the U.S. PCB sector have been in the news recently, with at least 12 deals completed over the past year, and several more in the works. In contrast, the EMS sector has been relatively quiet, but that may change now that the presidential election is over.

View Story
Back

2016

War Stories from the Front Lines of Deal-Making

09-16-2016

Here are some war stories from my experience in working on M&A deals in the PCB, EMS, and electronics fields. The names and details have been changed to protect the innocent.

View Story

Timing: When is the Best Time to Sell?

08-18-2016

A few of the top questions we receive relate to the timing of the sale of a business. The first is, "Is now a good time?" The second one is, "How are market conditions?" These are the top FAQs.

View Story

The PCB Sector—What Buyers Look for and Recent Deals

07-14-2016

The past few months have seen a rash of PCB deals in North America, for a variety of reasons.

View Story

What the Heck is Adjusted EBITDA?

06-07-2016

If you are looking to sell or buy a business, you will most likely come across the term ‘adjusted EBITDA.’ Other common terms are adjusted cash flow, owner’s discretionary earnings, earnings after add-backs, etc. What do these terms mean, and why are they important?

View Story

The Additive Process: Tips on How to Buy a Board Shop or Assembly House

05-14-2016

One of the quickest ways to grow a business is to acquire another business. At the same time, acquiring a business can be risky, and a really bad deal may put your original business in jeopardy. Here are some tips on how to make acquisitions.

View Story

Your Baby’s Ugly, Now Get Over it (How to Work with Buyers)

04-14-2016

Here’s a scenario: An owner has gone to market and is starting to get feedback from buyers, and shockingly, not everyone appreciates the hard work and achievements that went into the business. Buyers may not understand the business, or they may be trying to position things for a low offer. In any case, it is important to know how to work with buyers.

View Story

Putting Together the Deal Team

03-21-2016

When preparing to sell, remember the old saying, “He who represents himself has a fool for a client.” While many owners might be tempted to go it alone, in my experience it pays to have a deal team to help prepare a company (and the owner) for a sale

View Story

Punching Out: How to Sell Your PCB/Assembly Shop

02-04-2016

You are thinking of selling your PCB or assembly shop. Perhaps you are contemplating retirement, you have no successors, and the thought of going to the office on Monday is driving you crazy. This column is designed to help your planning efforts. Future columns will go deeper into each subject

View Story
Copyright © 2017 I-Connect007. All rights reserved.