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M&A Timeline and M&A Process

By Generational Equity

m & a timeline and process

When we meet with business owners one-on-one at our weekly conferences, we often ask them What is your expected timeframe for exiting their businesses? Quite often this question is greeted with a blank stare. If this is how you would react if we were to ask you that question, don’t feel badly.

Surveys indicate that the vast majority of business owners have never considered the timeline for their exit. For example, according to a study conducted by Whitehorse Advisors, “96% of baby boomer business owners agreed that having an exit strategy was important, but 87% do not have a written exit plan.” If you were born between 1946 and 1964, you fall into the baby boomer group.

Our experiences reveal the same type of statistics. Business owners are simply too busy or are unaware of how vital exit planning is to sell a company. Every business owner will eventually be faced with the decision of what to do with his or her company and they need to be fully informed about the M&A process. If you are like most entrepreneurs we meet, most of your assets are tied up in two items: your home and your business. Chances are good that your entire retirement will be dependent upon what you do with these two items.

Components of an Exit Plan

A formal exit plan should cover two key issues:

  1. How much capital will you need post-sale?
  2. When do you plan on exiting?

Answers to both of these are critical in the M&A process. The first question is unique to each individual we meet. Some of you are years away from retiring but you want to exit your company and move on to your next adventure. Others are at the point of being exhausted with running a company and simply want to retire. Under either scenario you need to meet with your financial planner and discuss how much money you will need when you eventually move on. This is a key step that many people never take.

The question is this: If you need $3 million to retire but your company is worth less than this, how will you know that exiting right now is not the best plan? And how will you know that you need to develop strategies to build your value? You won’t. The first step is to meet with your financial planner and determine how much money you will need. Then, have your company valued by an experienced M&A advisory firm to determine what it is worth today. The first step in the Generational Equity exit planning system is a thorough and complete business valuation. 

Sell When the Market is Right

key parts of an exit plan

As for the “when” to exit, this part of the M&A process is dependent on two factors: you and the market. Only you can decide when you feel the time is right to move on. Some owners we meet with have been running their companies for decades and are at the age when retirement is near. Others are much younger but have decided that other things are more important in their lives right now than managing the business daily. Again, only you can fully internalize this and make a decision. We suggest that you don’t make this decision alone. Meet with your spouse, children and other trusted advisors. This will possibly be the most important decision of your life so make it wisely.

However, the other issue you need to consider is the market. Everyone wants to time their exit at the top of the M&A cycle. This is hard to time indeed. Three key issues to consider:

  • Cap Gains Taxes
  • Interest Rates
  • Buyer Activity

Right now we are seeing the rare convergence of all three of these factors. Cap gains taxes are at a historic low and should remain so through the end of 2012. This means that when you sell, you will retain more cash at closing.

Likewise, interest rates are at an all time low, helping to enhance current business valuations. If it costs less to finance a deal, the higher valuations tend to be.

Finally, both corporate and financial buyers have excess cash set aside for acquisitions. So as you look at the timing of your exit, consider not only your personal factors, look at the current market trends and sell when the market tells you to sell.

Be Proactive – Plan For Your Exit

If you haven’t developed a formal exit plan and a timeline for your exit, I would invite you to attend one of our free informational exit planning workshops. Entitled “How and When to Exit your Business for the Most Profit,” the conference is designed to help you learn more about the overall M&A process, but specifically what you need to do today to begin preparing your company for your exit. 

Bottom Line

Do not put off exit planning or learning about the M&A process. If you do, eventually external circumstances beyond your control will force you to exit not when you want, but when you need to. When that happens, you usually will be forced to sell at a discount. Don’t make this mistake!

© 2011 Generational Equity, LLC All Rights Reserved

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.
Pete L.
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.
Andy Graham, Vice President, Modern Heating & Plumbing
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.
Robert Evans, President and CEO of Mealtracker Dietary Software
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.
Jay Dinnison, Owner of Sharpe Mixers
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.
Michael J Polarek, President, Paragon Packaging
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.
Jay Dinnison, Owner of Sharpe Mixers
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.
Karen S. Williams, CFO, BW Manufacturing
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.
Michael J Polarek, President, Paragon Packaging
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.
Terry D. Wickman, President, Keytroller
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”
Karen S. Williams, CFO, BW Manufacturing
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!
Andy Graham, Vice President, Modern Heating & Plumbing
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.
Larry Moore, Owner, A Company Portable Restrooms
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.
Ralph Noblin, President of Noblin & Associates
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Terry D. Wickman, President, Keytroller
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.
Robert Evans, President and CEO of Mealtracker Dietary Software
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse
Generational Equity’s assistance was invaluable in compiling and marketing our business.
Bil MacLeslie, CEO, ipHouse
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms