Signs it’s Time to Sell: Strategic & Tactical Approaches to PE Transactions in 2023
Selling a business brings many benefits – but only if the transaction is successfully navigated.
Bridgepoint Consulting sat down with Stephen Day and Tim Walsh, founders of investment banking firm Navidar, to gather thoughtful insights into some of the signs it’s time to sell a business and the different approaches organizations can take to drive transaction success in 2023.
How to drive successful business transactions in 2023:
- Understand the most common signs it’s time to sell
- Utilize strategic approaches
- Utilize tactical approaches
Common Signs it’s a Good Time to Sell Your Business
“Making the decision to sell your business requires careful consideration – and the No. 1 goal is that you prepare thoughtfully.”
Timothy J. Walsh, Managing Director at Navidar
The specific circumstances that guide an organization to sell will vary depending on their specific industry, needs and goals. However, these are some of the most common signs to consider before getting started.
Acquisition of another company in a similar industry or industry consolidation
When a company within a specific industry gets acquired, it can sometimes set off a chain reaction as other organizations in the same niche begin to see the growth potential and strategic benefits a transaction can bring.
In addition, if the industry at large is undergoing a period of consolidation, deciding to merge or sell to a private-equity-backed portfolio company can provide new and lucrative opportunities for fostering collaboration and synergy, creating economies of scale, and identifying strategic advantages as an organization gains access to the larger entity’s resources and market position.
Unsolicited inbound interest
Another sign it’s time to sell occurs when an organization is experiencing unsolicited inbound interest – not just from PE firms but also strategic buyers who contact them to identify whether or not they’re looking to be acquired.
Essentially, if there’s external interest in a business that they did not seek themselves, it’s a good sign that they are deemed valuable in the eyes of potential buyers – and thus, may want to consider a sale.
Strategic crossroads for capital requirements
If a business is at a strategic crossroads in that it requires a substantial infusion of capital to fuel company growth or expand to new markets, partnering with a private equity firm or strategic buyer can provide the expertise, funding and resources needed to accelerate the development of the organization.
Growth and value maximization
If an organization has recently gone through a period of rapid growth – and thus, has reached a point where it has significant value – it might be time to consider a private equity transaction, as PE firms and strategic buyers are often attracted to high-growth businesses with the potential for future growth, profitability and innovation.
Exit of shareholder or succession planning
When a major shareholder – be it a CEO or other high-level executive – is looking to make an exit, it can often be a signal that it’s a good time to maximize and monetize a business.
As an individual is nearing retirement or planning an exit strategy, private equity transactions can be particularly helpful for facilitating a smooth transfer of ownership. A PE firm or strategic buyer will either bring in new management or prepare current employees to make the shift, ensuring the organization’s continued success.
For more information, head over to Navidar’s blog: What Founders and CEOs Wish They Had Known Before Selling Their Company.
Strategic approaches to private equity transactions
After a business has identified that it’s the right time to sell, it’s vital to identify strategic approaches to help reach the overall goals of the transaction.
1. Establish the goals of the sale
Identifying the goals of a sale is essential for integrating the right methods, processes and systems to ensure key deadlines are met.
For example, what do shareholders want to accomplish from the transaction? Do founders want to stay for the long haul, or are they looking to leave shortly after the sale is completed? How will project objectives be aligned with long-term strategies?
Answering these vital questions will help lay the foundation for a successful transaction, as they will guide all the decisions that need to be made going forward.
Quick tips for establishing the goals of the sale:
- Clearly define the objectives of the sale for both the short and long-term.
- Evaluate financial expectations for the sale and determine the minimum acceptable price.
- Identify non-financial factors that are important, such as business continuity, preservation of company culture and the future strategic direction of the organization.
- Conduct the necessary due diligence in assessing your organization’s strengths, weaknesses, opportunities and threats (SWOT analysis) to identify areas that require improvement.
- Identify the right partner for growth by researching private equity firms or strategic buyers that align with your goals and offer strategic value, operational expertise and a shared vision for the future growth of your business.
2. Identify the type of transaction you’re looking for
As the groundwork is being laid for the potential sale, it’s also essential to pay close attention to the types of transactions an organization can pursue.
Strategically, they may want to exit entirely – however, if they’re selling to a PE firm or strategic buyer, it might be beneficial to do a majority recap where founders roll equity or retain interests.
Again, this will depend specifically on the organization’s needs and goals.
3. Confirm valuation and establish effective communication processes
Next, the organization must settle on valuation and identify the point at which it would be willing to sell. It’s vital to conduct a well-run process in getting a range of bids and identifying the minimum sale amount.
This process also involves defining the terms of a transaction, including the purchase price, deal structure, post-acquisition management roles and any other provisions that are deemed important to business leaders.
Lastly, it’s important for the organization to maintain open and transparent communication with their potential buyer in clearly articulating goals and expectations and ensuring they align with the buyer’s vision for growth.
Establishing successful collaboration from the get-go is vital for avoiding potential conflicts down the line and ensuring a smoother transition.
4. Be emotionally ready to sell
“You have to be emotionally ready to sell your business. Oftentimes, we see clients who have made it all the way to the signing stage, and they realize that they won’t have control over their business anymore – and it becomes difficult for them to put the pen to paper.”
Timothy J. Walsh, Managing Director at Navidar
It is often an emotionally complex endeavor to decide to sell a business – so as soon as one begins to think about selling their business, it’s vital they do what they can to prepare themselves to part with it.
Tactical approaches to private equity transactions
“The No. 1 thing you have to realize is that the M&A market is an incredibly imperfect market. It’s remarkably inefficient, and the disparity between the winning bid and the cover bid is often mind-boggling. However, there are ways in which you can make this inefficiency work for you.”
Stephen B. Day, Managing Director at Navidar
1. Create an internal deal team
An essential approach to driving private equity transaction success is to cultivate an internal deal team in identifying which individuals will have control over the numbers and report to bankers and other stakeholders.
Business leaders need as much support as they can get when attempting to sell, and it’s vital they have the right people on their side.
2. Get your financial house in order
According to Stephen, the majority of the disconnect with selling a business comes when there are discrepancies between qualitative and quantitative stories. Essentially, the numbers must match up to the larger story about who a business truly is and what they do.
To drive transaction success, the plan must 1) be defensible from due diligence and 2) be meetable and credible.
3. Hire an expert
“At Navidar, we believe it’s incredibly important to turn to an expert for guidance. Given the imperfection in the market, you need the ability to negotiate good terms for your future growth and success.”
Stephen B. Day, Managing Director at Navidar
Hiring a professional is essential for understanding and overcoming roadblocks and ensuring organizations receive the highest possible value. For more information, head to our blog: Private Equity Consultant: What Do They Do, How Do They Help Your Business?
Final Thoughts on Driving Transaction Success in 2023
There are many signs that it’s time to sell a business, and there are many ways to execute a transaction. As such, it can be difficult to identify the best path forward without turning to a trusted partner for guidance.
At Bridgepoint Consulting, we not only have a solid team of private equity experts but also a robust partner network which we can utilize to help guide you towards your goals.
Whether you need guidance from our investment banking friends at Navidar, are looking to enhance your business fundamentals before you make the sale, or if your needs lie anywhere in between and beyond, we work closely with your organization to provide support where it’s most needed and establish connections that will last a lifetime.
About Stephen Day
In leadership roles in the Global Technology Investment Banking groups at Goldman Sachs and Bear Stearns, Stephen led the execution of U.S. and cross-border M&A (buy-side, sell-side, shareholder defense, carve-outs, spin-offs) and financing transactions for many of the world’s largest and leading technology and business services companies. At UBS Securities Stephen and Tim worked together to create and build the East Coast Technology Group.
During his 20-year investment banking career, Stephen has executed over 80 M&A and financing transactions with deal volume totaling nearly $22 billion. He has provided M&A advisory services to leading companies such as Cognos, CSC, EMC, FreeMarkets, Geac, IBM, Internet Security Systems, and Logica. He has also underwritten many equity and debt offerings for leading companies such as Accenture, Aspect Communications, Cognizant, CoStar Group, CSC, Infosys, Oracle, Patni, Sapient, SRA International, and VistaPrint.
Prior to moving to New York to begin his career in investment banking, Stephen lived in Chicago for 8 years working in corporate finance and accounting for companies in the advanced manufacturing and industrial sectors. He worked in the Treasury department of a Fortune 500 conglomerate (Whitman Corporation had 3 lines of business: Pepsi Bottling Group, Midas and Hussmann) and was an auditor at Deloitte & Touche conducting financial audits of companies such as BorgWarner, Katy Industries, and John Deere.
Stephen holds a BS from Indiana University’s Kelley School of Business with a concentration in Accounting; MBA from the University of Chicago’s Booth School of Business with a concentration in Finance & International Business.
About Tim Walsh
Tim began his investment banking career at Morgan Stanley in New York, where he helped to establish the firm’s emerging growth technology practice and create an industry-leading franchise in this sector. He went on to Head UBS Securities’ East Coast Technology Group and establish and build the technology investment banking practice. Tim was later recruited by SG Cowen as Global Head of Technology Corporate Finance; where he was also a member of the firm’s Executive, Equity Commitment and Fairness Opinion Committees.
Like many of Navidar’s entrepreneurial clients, Tim has built organizations from the ground up. He ultimately left a large-firm platform to join a boutique bank, Boston-based Lane Berry, where he was Head of Technology Investment Banking and a member of the firm’s Executive Committee.
Tim holds a BA from Williams College, magna cum laude, and a JD/MBA from the University of California, Berkeley where he was a member of the California Law Review.
About Navidar
Navidar is an investment banking firm committed to providing superior execution and outstanding results to companies and investors in dynamic industries. They offer strategic M&A advice and capital-raising solutions by utilizing their extensive industry knowledge, global reach, and relationships with potential buyers and investors.
Need Support for Your Next Transaction?
Whether you are navigating a potential deal or nearing a close, your primary focus is on realizing its perceived value. With inherent complexity at every phase of the dealmaking journey, our team at Bridgepoint Consulting alleviates the challenge of tracking down real-time data and metrics across your portfolio companies by consolidating and transforming these elements into high-performing processes so you can deliver on your investments.
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