M&A and Corporate Advisory Director
The M&A transaction market is subject to business cycles. As it depends on the current situation of a business, there may be some ups and downs. Recently, due to the SARS-COV-2 pandemic and the emerging global economic crisis, company owners who planned to sell their businesses are now beginning to question the idea: does it make sense to sell a business at the time of a crisis?
Do they really want to sell?
Regardless of the market situation, when planning the sale of a company it is necessary to begin from asking yourself a question: why do I want to sell it? Only an honest, well-reasoned response will be able to either trigger the further course of actions or call it off.
If the reasons for selling are good, it is worth taking another step, that is consider to what extent the market situation will impact the entire selling process and the potential price. The answer will never be unambiguous and it usually comes down to the classic phrase “it depends”. It should be taken into account that during the crisis some industries experience a slowdown, while others flourish. That is why we have to know if our business is crisis-resistant and if we, as owners, do not hamper the further development of the company. It is often the case that, upon achieving a certain level of development, tired after many years in the business, business owners stop taking daring steps and settle with what they have achieved so far. And yet, the business may still be bursting with potential and could continue to grow, e.g., taking the chances emerging in the crisis.
If the business can be categorised as crisis-resistant and the owner is highly motivated to perform the sale, such a decision should be taken. There is high chance that the realisable value will be high. Maybe even higher than at normal market conditions. If, however, the business is prone to the deteriorating market situation and may have (or already has) some operational issues, it would be better to wait until the crisis is over, and, in the meantime, devise a plan helping you to prepare yourself for the sale and leave the business at the time when the economy is more stable. Such a plan should of course include actions aimed at improving the condition of the business, including cutting costs, searching profit or savings on investments with deferred gains. The plan will have two key functions – it will help you put the business in order, taking into account the current market situation, and will be a scenario for the future when it comes to planning and taking actions.
When planning the sale of a company during the economic crisis, it should be noted that every crisis will eventually come to its end. So far, the average duration of an economic slowdown was about 2 years. This fact and the understanding that the buyers usually have a long-term perspective, will also be beneficial for setting the right price.
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Who will pay for it?
There is no denying that during a crisis it is more difficult to find a buyer. It is mainly due to the fact that the majority of transactions is leveraged (which is supposed to spread the risk of the performed transaction). It is also much more difficult to have debt at the time of an economic crisis (or it is just too expensive for the buyers). It does not, however, change the fact that transactions are still effected, yet with changed funding structure. It is good to be open to more creative than usual forms of funding, including an option when the buyer uses the seller’s funds to perform the transaction.
It is good to be open to more creative than usual forms of funding.
If the owner wants to sell the business at best possible conditions, and this includes getting the best price, the transaction should be performed when the business shows good financial standing. If, e.g., the revenue begins to fall, the sale of the company will be more difficult – regardless of either the crisis or economic prosperity.
Support is everything
The one thing that never works out in business is making hasty decisions. An owner planning to sell a company should take advantage of the support of a professional consultant and forget about trying to perform the transaction on their own. Crisis or not, transaction consultants will do their best for the transaction to generate added value for their principal.
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