John Roppo believes that knowing your value is just the start. Preparing for a sale takes time — especially if you want to get the best price you can. The long-time CFO started his own firm, Roppotunity LLC, to help companies prep for sale, among other things.
“You can’t bring somebody in three to six months out and say, get the company ready for sale,” he says. “You can do it, but you’re not going to get the best value, or you’re going to have a higher risk of the deal falling apart.”
Dawn Fuchs Coleman and her family’s business, Weavertown Environment Group, is a good example of why it’s important to be prepared. They had been approached numerous times by venture capital groups and angel investors but were never really interested.
When Univar, however, came to the environmental services company in 2015, she decided to listen to its offer, and nine months later, the sale went through.
Her reasons were many, but the timing was right. Fuchs Coleman wasn’t sure if the next generation, which was still young, was interested in running the company. She also knew the company couldn’t continue to self-finance, so a large strategic buyer was appealing.
“I had an uncle that had a very successful family business in the second mortgage lending space,” she says. “He had an offer to sell his business. He turned it down, and years later, I think he always regretted it. So, I had that in the back of my mind, too.
“You can’t be naïve, and you can’t be ignorant. You’ve got to be willing to hear it. If it feels right, listen; don’t just stop and say, ‘I’m not interested.’ You have to be open-minded.”
Use all available growth tools
Sreekar Gadde, executive director at BlueTree Capital Group, has noticed that staying updated on the M&A market allows business leaders to better plan for the future.
“This allows leaders to make informed decisions about their business — basically making sure that they are moving with the market and not stagnating,” he says. “In addition, this allows leaders to keep an eye open for M&A opportunities.”
They may discover a strategically advantageous chance to merge or acquire companies at a low value that will improve the business’s future opportunities, Gadde says.
BlueTree Capital Group also tends to view all major decisions in the context of M&A, he says. What is the ROI? Can the venture capital firm see a way to get a 3x to 5x on the capital or resources spent?
“In view of that, most, if not all, parts of a growth strategy need to be considered within the context of the M&A market,” Gadde says.
Business owners may want to use a similar lens on their decisions, especially if there’s a possibility that they want their company to be acquired in the future.
“Business owners need to constantly be informed about the M&A ecosystem — both the current status and where the ecosystem is headed,” he says. “This informs every decision they make, from product roadmap, to hiring, to financing and, eventually, when to start the acquisition process and how to position their company to get the most favorable terms.”
The most effective business leaders use all available tactical and strategic tools to grow shareholder value, says Louis Testoni, a retired market managing partner with PricewaterhouseCoopers who serves on a number of corporate boards.
Buying companies or divesting assets is one of those tools.
“Divestitures can be a valuable tool to monetize underperforming assets and/or assets no longer aligned with the core business strategy,” he says.
They can also unlock intrinsic value sitting on the balance sheet to reinvest in alternative ways, or reduce debt or increase working capital to support other parts of the business’s growth strategy.
