I recently enrolled in a course for prospective buyers of businesses. I thought I could gain some insights into the thoughts from the other side of the table. As early as the first lecture, it has proven itself worth every cent.
It is apparent we are in a new space in the M&A industry, with new challenges. This may make it much more difficult to get the results for which you have been planning.
When it comes to selling your business, your opportunities to get it right are limited. For many business owners, it is the culmination of a lifetime of work. The owners of successful businesses, used to despatching the competition with well-practiced responses to objections, cannot use the same tactics in selling this uber product: their business. They often struggle to come to terms with the unexpected competition of otherwise unrelated business types, but also, “on the market.”
The very first lesson of the buyers’ course started with “Top of the agenda is understanding the ‘Silver Tsunami’ and how ‘we buyers can benefit from it’.” That is the potential new challenge for sellers. For years (decades even) well-versed business buyers have used the tactics espoused in this course, but now these guys want to take it mainstream.
What “Tsunami”, and what does it have to do with you?
“The term "Silver Tsunami" refers to the demographic shift caused by the aging population, particularly the significant increase in the number of elderly individuals in many countries. The metaphorical use of "tsunami" implies a large and powerful wave that can have a profound impact on society.”
In its original definition, the term describes the reality of aging populations not being replaced by younger members to keep up national production, tax payments, and pension and health fund contributions.
In this buyers’ course I am attending, run by M&A buy-side attorneys, they pitch the phenomenon as a good thing for business buyers. “Buyers are spoilt for choice by the growing number of retiring business owners rushing for the exits.” I paraphrase here. “We can shop around at our leisure because there are fewer of us than of them, we have time on our side, and we can snap up some great bargains.”
Why should your business become their bargain?
You and your business could fall into the bargain bin through a number of mechanisms:
The intersection of the supply-demand curves
Financial and shareholder fatigue
Little appreciation for the process
It is your job as the owner of the business to at least be aware of the threats or weaknesses, but preferably, take action to stay out of the bargain bin.
The intersection of supply and demand
I’m no economist, but if you’ve been running a business for any time, you’ll also understand that excess supply causes a drop in prices, particularly if demand remains unchanged. This is the raw opportunity the presenter of this course espouses. They see a bottleneck at the exit. They sit on the outside, picking off the best as they become available.
There is nothing you can do here, other than hang on for about ten years, I think. By then, the baby-boomer seller demographic will have passed, and these youngster wunderkind buyers won’t know everything anymore!
Let’s move on.
Financial and/or shareholder fatigue
As business owners age, they become risk averse. They no longer want to fund new opportunities for growth, either through equity or debt. The result is that opportunities are passed, equipment ages, and processes stagnate. Growth is likely to slow down.
Younger, more energetic buyers with a higher appetite for risk will see the business as more valuable for the future than the existing owners do for the present. They will make their offers based on historic performance, but their decisions on the promises of the future.
What you do here depends on you and your business, and where you want to go with it. Several of our clients have had stunning successes with the help and guidance of GrowZA who will take businesses struggling to make the leap from mundane to scaled performers. That program will also remove many objections business buyers have with:
Sustainability
Scalability
Growth
You will know if your business needs their services, and whether you fit their client criteria. Tell them I sent you. I get no commission or affiliate fee from them if you go to them. But I can tell you that we share some clients, and I hear good things.
Little appreciation for the process
Selling a business has a learning curve. Every single time. Even if you have done it once or twice previously. Each new sale is invariably bigger, more involved, and within a new market dynamic. This is neither the time nor the place for on-the-job training.
Let’s face it, most business owners have no earlier experience of selling a business, while a few may have done so once before, they don’t really know what they’re in for because the M&A landscape changes faster than their businesses.
As a seller, you are at a distinct disadvantage when you go up against experienced, bolshy, and/or ruthless buyers and financiers. And then there is the business broker.
When a business broker tells you they represent the best interests of both buyer and seller, you better believe they only have their own interests at heart, ahead of the buyer’s interests, and well ahead of the seller’s.
Being held hostage to an intermediary’s preference for deal structure may not work in your tax favour, just because they motivate for a quick and “safe” deal. Knowing when they’re acting in a faith that is neither good nor in your best interests is crucial.
The selling process is so fraught with risk from beginning to end. Sliding down the divide between paranoia and exuberant trust is nerve-racking. Keeping track of signatories to NDAs, and their “professional advisors” is confusing. Extricating oneself from the remnants of a poor deal is heartbreaking.
Education and preparation
If you own a business that you believe will be sold one day, you must get to grips with these things. It is a passion of mine that business owners should get the best deals possible with what they have. Getting to the best deal demands preparation across several silos.
You work to create a valuable asset. You deserve to use that asset as leverage for a better life.
Do not fall for: “We have a policy of paying 4 times net profit”. Close your Powerpoint, put your laptop in your bag, and move on. Someone else will buy it.
If you need help with this, a link to our contact details is in the footer. At the very least, I hope you hang around for the launch of our new online course: PrepareYourBusinessForSale.