Changing ownership of or selling your company can be one of the most challenging things you do in your career. However, if you’re methodical in the way you handle a merger or acquisition, you will be better off than not.
Merger and acquisition activity continues to hit incredible highs with more than 50,000 deals announced globally in 2021, according to KPMG. As that number is expected to be topped in 2022, more deal activity also means more failures. In fact, analysts say that 10% of all M&A deals are canceled before parties sign on the dotted line. So how do you make sure your deal is among the success stories?
If you’re planning to sell your business, whether you’re a 60-year-old company or in the midst of Series A, it’s important to work intentionally as early as possible. Deciding when and how to sell – be it merger or acquisition – is an enormous decision but it’s never too early to start making smaller decisions that will boost your company’s worth and the potential for a successful sale.
Having been through multiple mergers, and just this year a smooth and fruitful acquisition, I’ve learned there are three key elements that have accounted for the triumphs: placing an emphasis on building enterprise value, creating a roadmap before the journey even begins and partnering with the right people.
Emphasize enterprise value
Enterprise value is the overall value of your business. Be among the small group of business leaders who think about enterprise value as deeply as they should. You can consciously drive enterprise value if you understand and commit to it with good planning and clear expectation setting from the start. Set parameters and follow that timeline. From your day-to-day decision making, all the way to deciding whether a merger or acquisition is best, all decisions should be made while keeping the growth of your enterprise value in mind.
By striving to create additional enterprise value well before you sell, you’ll keep more control of your choices and reap the satisfaction of everything coming together. Most importantly, a focus on building enterprise value will help you think more critically about your management style and, as a result, improve your leadership. It’s a win for everyone because it helps you and your business grow.
Chart your course
Consider what needs to be done to take your company from zero to acquisition. Once you’ve put this plan together, you can begin to prepare for growth with clear goals to work toward. Start your M&A journey by setting a clear expectation of when you want to sell and for how much. Then begin to work on how you will reach your goal, which could involve a series of steps like getting appraisals, investing in marketing, entering negotiations, and more. Another part of charting your course is making sure to find your valuation range, which usually requires leaning on a financial measure, such as earnings before interest, tax, depreciation and amortization (EBITDA).
As part of this process, look at “comparables” or “comps,” which are companies like yours and find out what they sold for. Each comp value is expressed as a multiple of your financial measure, such as five times EBITDA. By looking at the low and high end of your comp values, you’ll discover a range for where your company could likely sell.
Once you have this range, ask yourself, “How do we get to that goal?” Don’t allow the vast amount of work to be done to discourage you. It’s a lot to chew on, and that’s common. When setting a growth target, remember that small percentages can make a huge impact. For example, 5% might not feel all that far from 8% but when you apply a higher percentage for a few years in a row, it can translate to millions of dollars more in added value.
Partner with the right people
One of the most important lessons I’ve learned over the course of multiple mergers and acquisitions is to partner with the right people. This means working with people and organizations that share your values and have goals that align with yours – this includes everyone from your buyers all the way to your CFO. This helps to avoid conflicts and ensure a good outcome. If there is not already a CFO, CIO or COO to support you, hiring someone with similar capabilities or knowledge to support the sale plan can both speed up the sale process and improve the benefits. You’ll also want to hire like-minded professionals to look at dynamics around your business, such as size and industry. They can identify companies like yours and find out what they sold for.
While challenging, you can get through the process as you also keep in mind what is best for your business, clients, employees and stakeholders. Whether you’re simply exploring your M&A options, or have already committed to exiting your business, take things one step at a time, be intentional about growing your enterprise value, create a plan and surround yourself with the right people.