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.