Jared Pawelka
Member of TAMA 1-844-MIDAMGC (643-2642)

Selling & Divesting

There comes a time in nearly every business that new ownership is necessary. Eventually certain lines of business, equipment or services become non-core or otherwise less attractive relative to the company’s future plans. Firms can sell the stock or the assets and that can be done in whole or in part. Deciding when to sell and how can be a challenging but exciting task that our team can make very worthwhile. Stakeholders’ motivations to sell are numerous but some of the most common are retirement, changes in health, changes in business or regulatory environment and various elements of distress. Preparation for a sale should begin long before going to market.

Often a sale can occur with well-known counter-parties, including the firm’s management team, employees or vendors. These arrangements often result in smaller ripples in the press and for customers and suppliers. Selling to outsiders is a slightly different process and often results in a more competitive price. The most successful sales are the result of thorough planning and value optimization; preparation also opens the widest field of exit options. Value optimization is a deliberate process of understanding and exploiting the “value drivers” inside of an organization.

There are both Financial and Non-Financial value drivers to evaluate. The financial drivers include revenue, operating leverage, debt to equity ratio, earnings before tax (EBT) margin, etc. Non-Financial drivers include customer characteristics, management experience and synchrony, vendor relationships, location and many others. As a part of their strategic planning, ideally, management teams should anticipate various sale-inducing scenarios and discuss the parameters of them. Dynamic, strategic planning will reduce the disorienting effects of situations like the departure of a key-person, health or marital status changes of the main shareholder, sudden price shocks, unsolicited offers to sell and an unexpected non-renewal of a credit facility. There are too many stories of firms who missed an opportunity to capture the full enterprise value in a sale because the management team did not recognize the opportunity or they were not prepared to seize it.

Selling part or all of a business often entails finding or creating a market for the business and/or its assets—this is a key task that our team does that improves the odds of both a competitive price and terms. The main tangible benefit of creating a market is price discovery, the market will most certainly tell you what your business is worth. A live bid is much more valuable than a static valuation in these circumstances. Additionally, the market will provide feedback on the perception of value drivers, this feedback reveals what information the market is receiving relative to what is being sent (e.g. Is it clear that a third location is providing two additional market channels?).

The sales process requires strict attention to transactional elements that can distract the firm’s management team from building and maintaining the value of the company while it is being marketed for sale. Our company works to ensure that relevant factors are considered from the perspective of a variety of advisors at the right time.