Just because the forecast on M&A this year is promising doesn’t mean you can or should make a deal. Sometimes the market won’t align with your business cycle. If you are thinking of negotiating a sale of your business or a merger/acquisition this year, make sure the time is right for you, not just the industry at large.
When is the right time for an M&A deal? There’s no blueprint. For the most part, timing is case-by-case. That said, in my experience, there are similarities that one can point to and suggest that it could be high-time for a deal.
The life cycle of any business is relatively predictable, right? At least with small to medium-sized businesses, we have the founding/startup of the business, then rapid growth, followed by slower growth, a plateau, and then, eventually, the downturn. To identify when—in which phase—you want to seek a deal, you first need to identify your objectives. What I’d like to do next is explore the objectives that match up with each phase. The hope is that, by the end, you’re able to identify when you should look for a deal or, if you know you’re ready for a deal, what kind you should seek.
Founding/Startup
There aren’t many options for you at this point. It’s proving time. Unless you’re coming from a major shop, have a superb reputation in your industry, and are bringing with you a huge catalog of clients, you likely won’t find many buyers—assuming you want any buyer to begin with—and you likely lack the capital for any serious acquisition. Time to grind and build the value of your business.
Rapid growth
This is a tricky time. Things are on the upswing and it feels like it might never end. Still, you’ve got to take the long-view and be open to a deal. Test the waters. There’s a chance your business might be at peak value during this phase. It’s also likely when you’re feeling most prideful and optimistic about the company you created. If you find the right buyer—someone who will honor your vision and will preserve a lot of the critical aspects of your business—it might make long-term sense to sell right now, even if it feels unnecessary in the moment. Conversely, this might be a bad time for you to consider an acquisition. The process can be long and complicated. During this phase, your business needs your full attention as visionary and leader. Don’t lose that momentum unless you’ve identified a glaring need.
Slow Growth/Plateau
I consider this the “Goldilocks zone” of M&A. It’s when founders have the most clarity about their business’s value and place in the market. It’s also when founders have the most M&A options available to them. Your company’s value is probably still pretty close to its peak and, in a perfect world, you’ve reached the proverbial fork in the road. You have the assets and capital to consider an acquisition. Are you better positioned for an acquisition that leads to sales growth? Buy a competitor. You might be better positioned for market growth. Buy a complementary service. If you’re committed to continued growth, now is the time to buy and jumpstart growth again. If you feel like you’ve accomplished everything you wanted in creating this company, you can likely find a willing and suitable buyer.
Downturn
It’s important to be realistic about your business. Perpetual growth is something enjoyed by exactly zero companies. Growth is never linear, and your business will inevitably head toward a valley after it’s time at peak. At this point, you have a choice to stay strong through the downturn and consider what’s next for your business—which likely means a growth-oriented acquisition. Truthfully, it’s at this phase when many founders choose to sell their business. There’s still great value to be had in selling, and knowing entrepreneurs the way I do, it’s likely you’re eager to get onto your next project rather than pushing through something that you feel has reached a positive conclusion. If that sounds like you, start seeking potential buyers that suit your exit plan.
These observations are more than just hypothetical. They’re based on my experience working on M&A deals with businesses of all sizes and values. For a closer look at the M&A work we do at Kupfer & Associates, check out our website: http://kupferlaw.com/mergers-acquisitions/. If you’re the owner of a privately held small-to mid-market business, the halfhearted attention you’re likely to receive from a mega-firm will make it difficult to achieve your M&A objectives and get the best deal for your business. Having a dedicated team that possesses the experience and wisdom of a major firm while being committed to making you a priority can make all the difference. You need the right negotiator and deal-maker on your side.
Corey Kupfer is an expert strategist, negotiator and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author and professional speaker who is passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.
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