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February 8, 2019

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At the Crossroads: Should I sell... or keep growing my company?

 

 

Over the years, we have worked with hundreds of C-Level leaders and Boards. We have engaged in over one-hundred sale transactions. 

 

Our experience is consistent. There are 3 main reasons people find themselves at “the crossroads” of deciding whether to sell or to keep growing their company. 

 

We can hear their voices now: 

  • I met or I have been contacted by what I think is a potential buyer. 

  • My board or investors are pressuring me to sell or consider selling. 

  • We may/will run out of cash within 12 months and I need an alternative or exit plan. 

 

If you are faced with whether to consider a sale or to keep growing your company there tends to be a lot of emotion and some anxiety too. It’s going to be ok. Perspective is worth 50 IQ points. 

 

Let’s start with the first situation and the follow up questions it brings to mind:

 

1) Facing what may be your first prospective buyer

 

  • I met or I have been contacted by what I think is a potential buyer. 
     

    1. Am I prepared to handle and/or is it a distraction to engage in incoming inquiries from companies, PE firms or VCs to learn about my business?
       

    2. Are these parties serious or just looking to learn?
       

    3. Are they the right potential buyers? 
       

    4. Is there a company with a better fit to acquire my company?

 

When you hear from what looks like a potential buyer, thoughtfully assess whether a successful exit is indeed in your near future. Often unexpected outreach from “could be buyers” is not related to an acquisition so don’t make assumptions. 

 

You should approach meetings with little anticipation of outcomes but with a good deal of preparation.

 

Carefully develop your presentation and the narrative around your business. Take the time to test and tweak the presentation so you will best position your strategic value. 

 

If this outreach from a “could be buyer” makes you think about selling it is time to think about what an ideal buyer and outcome would look like. 

 

What if the issue of selling your company is more urgent like the next scenario?

 

2) Facing pressure to sell from your board or investors

 

  • My board/investors are unwilling to put in more money/pressuring me to sell or consider selling.
     

    1. Is this the right time to consider or to commit to an exit?
       

    2. Am I ready/is my company ready?
       

    3. Will this achieve the best outcome for shareholders and my team?
       

    4. Are we maximizing value?
       

    5. Is there an opportunity to unlock economics personally as part of the acquirer?
       

    6. Can I move on to something else after the transaction?

 

It’s tough when you’re under scrutiny and getting pushed towards an exit. You need to be realistic about your own perspective at times like this - which is that you are stressed and it is difficult to be clear headed.

 

It is imperative you are well informed, practical and understand the hand you have been dealt.

 

Brian Hamilton wrote a good article for Inc on this topic. He explains that timing might be right for an exit if

  • your company reached a milestone and the work is just not enjoyable for you anymore
     

  • you have hit the limit of your management threshold for size and the organization needs new leadership 
     

  • or perhaps there may be an imminent market threat that could eat into or destroy what you’ve built. 

 

On the flip side, Hamilton asks entrepreneurs to consider that maybe there is a lucrative offer on the horizon that you should not risk passing you by. 

 

But what if the cashflow for the business is at risk of running empty? That leads us to the final scenario. 

 

3) Facing the realities of insufficient cash flow

 

  • We may/will run out of cash within 12 months and I need an alternative or exit plan. 
     

    1. How serious is it if I am potentially out of cash in 6-12 months?
       

    2. What are the benefits/risks of running the business longer versus considering a sale now? 
       

    3. Do I have the option to wait and see what happens if I do not reach the milestones?
       

    4. What is the market value of my business? 
       

    5. How do I get a strategic valuation in a sale?
       

    6. Does it make sense to merge/roll-up to greater scale and get higher multiples in a sale? 

 

Sometimes we find ourselves in this unlucky situation where cash flow is in trouble because of bloated costs due to investments in people or tech and/or revenues that have fallen short of expectations. In this situation you need an exit plan that has been developed calmly and provides a Plan B. 

 

Geoff Woods wrote a good piece on this topic in Entrepreneur and made some important points. The key point is to be honest with yourself about the issue at hand, what brought you there and your options and the implications of each pathway as you move forward.

 

You are not alone. This is where GHP comes in, ready to be at your side with 50 IQ points of perspective and depth of experience and relationships to get to the best outcome.

How GHP can help:

 

  • With over 25 years in the education industry, GHP has both deep market knowledge and a network to match.
     

  • GHP’s core business is to advise entrepreneurs who should be or are in the process of considering whether to sell or keep growing their companies.
     

  • When we work with clients, it is best to get us involved early so that we are under the tent and positioned to help as much as possible.
     

  • If a potential buyer has approached you, we'll help you get your corporate house in order and create a quiet outreach to establish a competitive process unlocking the highest value and best outcomes.
     

  • If you decide to keep growing your company, we work with you to accelerate growth and build value, positioning you for a successful exit in the future.

In future blog posts, we’ll share how some of our top clients have opted to sell their companies when they are at the crossroads. We’ll also share how some of our clients decided to keep growing them. Stay tuned for more posts in this series, which is a companion to this infographic we created to explain how we work with companies.

 

If you need help or think you will soon, please reach out to me through email or on LinkedIn. We’d be happy to connect with you for a free consultation.

 

Cheers, Mark

 

Mark Miller, Managing Partner of Good Harbor Partners

 

 

 

 

 

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