A search fund is an investment vehicle through which an entrepreneur raises capital from investors to fund the search for and eventually the acquisition of a privately-held company. 

The search fund model allows the entrepreneur to collect a salary while they search for a suitable target company and negotiate a letter of intent and perform due diligence. Once a target company is acquired, the entrepreneur usually takes an active role in managing and growing the business, with the goal of creating value for all stakeholders involved.  Investors provide the necessary capital and often offer guidance and expertise.  Another term for search fund is “independent sponsor”.

Search funds aren’t our favorite type of buyer, but occasionally they are the right type of buyer for one of our seller clients. Search funders are most likely to prevail in a sale process when all of the following are true:

1. the seller manages the business and doesn’t have an internal successor,
2. the business is smaller, say less than $2M EBITDA, and
3. there are no strategic buyers present, or the seller wants to retain some equity and the strategic buyers can’t accommodate that, or the seller doesn’t like what the strategic buyers plan to do with the company (e.g. relocate, rebrand, or dismantle it).

For further information on this subject or to discuss a potential business sale, merger or acquisition need, confidentially, contact Al Statz at 707-781-8580 or alstatz@exitstrategiesgroup.com.

For founder- and family-owned businesses, deciding to sell is much more than a financial decision. Its a pivotal moment that marks the culmination of years, often decades, of dedication and hard work. The timing decision involves personal and market factors that can significantly influence the outcome of a sale. Understanding the right moment to sell requires an appreciation of the market environment, the business’s lifecycle, and the personal readiness of the owners. 

Market Conditions

The broader economic and specific industry conditions play a vital role in determining the optimal time to sell. A robust market with strong buyer demand and healthy valuations offers a favorable backdrop for selling a business. Sellers should look for periods of economic growth, low interest rates, and a competitive M&A landscape, where strategic buyers and private equity firms are actively seeking acquisitions. Timing the sale when your sector is experiencing an upswing in valuations or when there is a surge in demand for businesses like yours can significantly enhance the financial returns from the sale. 

Business Readiness

The ideal time to sell is also closely linked to the business’s operational and financial health. A track record of steady growth, strong profit margins, a diversified customer base, and a solid management team in place all make a business more attractive to potential buyers. Preparing for a sale often involves several years of planning to streamline operations, professionalize management, and resolve any outstanding legal or financial issues. Selling when the business is on an upward trajectory, rather than in decline or during a plateau, can positively impact the valuation. 

Personal Readiness

For many founders and family-owned businesses, personal readiness to sell is just as critical as market and business readiness. The decision to sell often involves emotional, lifestyle, and legacy considerations. Owners must assess their personal goals, retirement plans, and what they envision for their life post-sale. Additionally, the desire to ensure the continued success of the business and care for employees can influence the timing and terms of the sale. Waiting until the owners are mentally and emotionally prepared can lead to a more satisfactory outcome. 

Succession Plans

The absence of a clear succession plan within the family or the business can be a strong indicator that it’s time to consider selling. If the next generation is not interested or ready to take over, or if there is no internal candidate who can lead the company forward, selling to an external buyer who can provide the necessary leadership and investment might be the best option for ensuring the business’s continued growth and success. 

Strategic Fit

Sometimes, the right time to sell is determined by strategic considerations. This could be a shift in industry dynamics, the emergence of new technologies, or changes in consumer behavior that make it advantageous to sell to a larger entity with the resources and capabilities to navigate these changes more effectively. 

Conclusion

Timing the sale of a founder-owned or family-owned business hinges on a range of factors. Sellers must balance market opportunities with personal readiness and the business’s operational health. With careful planning, owners can identify a strategic window that maximizes financial returns and protects their life’s work. 

For further information on this subject or to discuss a potential business sale, merger or acquisition need, confidentially, contact Al Statz at 707-781-8580 or alstatz@exitstrategiesgroup.com.

I recently surveyed a dozen former business owners—many of whom were my sell-side M&A clients and some who were not. I asked them to share the advice they give to business owners who plan to sell someday and the mistakes they should avoid, and several themes emerged.

Here’s what they had to say …

1. Assess Earlier. Many sellers wished they had commissioned a comprehensive business Assessment a year or two earlier. A proactive pre-sale evaluation by a quality M&A advisor is almost certain to increase a business’s value and sale readiness, and there’s no downside.
2. Grow and Build. There was a recurring regret among sellers about not building a larger, better company before selling. Sellers acknowledged that stronger, more robust businesses command higher sale prices.
3. Financial Performance. Some sellers recognized that they became complacent and accepted subpar financial performance and left underlying issues unresolved, which negatively affected their sale outcome. Some wanted a do-over.
4. Focus on the Right Metrics. A number of sellers said they were unaware of the key performance indicators that were most important to buyers and could have driven market value upward. The Assessment mentioned above identifies these opportunities.
5. Kill More Sacred Cows. Sellers often wish they had changed outdated business practices, closed underperforming divisions, abandoned pet projects or replaced subpar employees. Eliminating “sacred cows” streamlines operations and increases a business’s value.
6. Address Concentrations. Significant customer, supplier or employee concentration risks were often overlooked by sellers, which could have been mitigated with earlier attention.
7. Strengthen the Management Team. One recurring piece of advice was to build a stronger executive team. Sellers often regretted not having a more capable team in place to attract more buyers, command better deal terms, and facilitate a smoother transition.
8. Needed an Outside Board. A few sellers thought that having external board members would have provided valuable guidance and oversight and would likely have led to better strategy decisions during their ownership.
9. CPA Firms can be Outgrown. Some sellers did not recognize when their business had outgrown their CPA firm until it was too late, resulting in excess taxes or less effective financial support leading up to and during the sale process.
10. Respect Due Diligence. Financial and operational due diligence proved to be much more thorough and data-intensive than several sellers anticipated. Properly compiling, organizing and examining relevant data ahead of time is crucial. Unresolved HR, legal and compliance matters complicate and sometimes derail a sale process.
11. Deal Team is Important. The aggressiveness of the buyer’s deal team caught several sellers off guard, highlighting the need for stronger representation and better preparation. And those few sellers who didn’t hire an M&A advisor/investment banker felt outmaneuvered by the buyer’s deal team.
12. Listen to Advice. Disregarding sound advice and market feedback led to missed opportunities and suboptimal outcomes for some sellers. Taking an unreasonable negotiating position, against the advice of their seasoned M&A advisors, caused one seller to lose an excellent deal.
13. Expand the Buyer Pool. Sellers who limited themselves to a single buyer often felt that they missed out on better offers or more suitable partners. Some sellers initially dismissed buyer prospects identified by their M&A advisor who later proved to be excellent candidates that offered favorable terms. These sellers were very happy that their advisor opened their mind.
14. Date Before You Marry. Several sellers recommended engaging with multiple buyer candidates before selecting a buyer. Asking many questions and thoroughly vetting finalists in a structured sale process helps sellers find the best fit and avoid problematic deals. A good M&A advisor organizes these interactions and helps sellers ask more of the right questions.
15. Run a Process. Sellers who did not follow a structured sale process often experienced failed deals or felt that they missed opportunities. M&A advisors play a critical role in navigating complexities, getting deals closed, and optimizing results.

Key Takeaways for Business Owners

Start Early:  Begin planning for a sale and preparing well in advance. Waiting too long can limit your options and reduce shareholder value.

Build a Strong Company:  A robust company with a strong management team is more likely to command a higher sale price. While you still have time, focus on growing and improving your business to enhance its attractiveness and value to likely buyers.

Assemble a Great Team: Surround yourself with a capable deal team, including legal, financial and M&A advisors. An experienced sell-side M&A advisor brings an investor’s perspective, helps you navigate the sale process effectively, and greatly influences the outcome of the sale.

Implement this advice and avoid the mistakes of sellers who have gone before you to better position yourself for a successful exit. Remember, you get only one chance to do this right!

—————————–

For information about Exit Strategies Group’s M&A advisory or business valuation services, please contact Al Statz at 707-781-8580 or alstatz@exitstrategiesgroup.com.

Retirement is the number one reason business owners sell, but 40 to 50% of business owners sell for other reasons. For over a decade, the IBBA and M&A Source Market Pulse survey of M&A advisors and business brokers has been tracking what motivates owners to sell their businesses. And the reasons have been fairly consistent over the years. After retirement, these are the leading reasons according to the survey: 

1. Burnout

The long hours and constant demands of running a business can take their toll, causing some owners to lose interest or energy. This is the second most common reason business owners sell.  

Unfortunately, when you sell at the point of burnout, your business may have already declined in value. When owners get burned out, they start to neglect key leadership responsibilities or overlook growth opportunities. Worse yet, owner burnout can infect employee engagement and customer loyalty.  

The best time to sell a business is when its on a growth trajectory. Buyers pay a premium for businesses with above average financial performance and growth. It can be hard to make the decision to sell under those conditions, but that’s also when buyers are prepared to pay the most.  

2. New Opportunity

Sometimes business owners decide to shift gears and pursue a new business venture. If you have a novel business idea you’re excited about, selling your current company can give you the funds and time to bring a new concept to life. Other business owners sell because they realize ownership wasn’t a good fit for them, and maybe they’ve received a great job offer. 

According to the Market Pulse Report, selling for a “new opportunity” is more common among Main Street business owners (i.e., businesses below $3 million in enterprise value) than those in the lower middle market. Small business owners have less financial investment, which may make it easier for them to unwind or sell. 

3. Unsolicited Offer

If you run a successful business, you may receive unsolicited offers from buyers interested in acquiring your company. Financial buyers, competitors and consolidators may come knocking if they see synergies or opportunity for growth.  

Sometimes an offer is just too good to refuse. But no matter what’s on the table, it’s a good idea to seek professional representation as many unsolicited offers are below market. Before you accept such an offer, have an M&A advisory firm like ours objectively evaluate your business and estimate what it should sell for, and work to protect your best interests.  

4. Family Issues

Life happens. Divorces and family conflicts, illnesses and deaths can prompt an owner to sell. Some owners want to have more family time, or relocate to be near grandkids.

Many family issues are what we call the “Dismal D’s” (divorce, death, disability, or disagreement). No one likes to think about all the what-if scenarios in life, but there are proactive steps you can take to prepare a business to weather these kinds of exits.  

With appropriate life insurance, for example, a surviving business partner can afford to buy out a deceased partner’s heirs. In the event of divorce or partner conflict, recapitalization strategies can help one partner keep the business while compensating the departing party. Getting a regular valuation on the business can help ensure everyone is on the same page about what the business is worth—before any these Dismal D’s occur.  

Plan Ahead

There are a variety of other reasons business owners sell. Maybe they are ready to take some chips off the table, or the industry is consolidating around them, or they just think the business itself would benefit from a new owner with different skills and more energy.  

Even if you don’t know when or why you’ll exit your business one day, there are things you can do to receive the best value for your business when you exit.  Consider an Assessment of value, exit options and sale readiness by an M&A advisory firm. Learn about different tax strategies available.  Incorporate exit planning into your strategic planning process.  

For further information on this subject or to discuss a potential business valuation, sale, merger or acquisition need, confidentially, contact Al Statz at 707-781-8580 or alstatz@exitstrategiesgroup.com.

Exit Strategies Group has advised the owners of Dynamic Solutions, a California-based provider of industrial automation solutions, on their recent sale to Valin Corporation, a subsidiary of Graybar. Effective May 1, 2024, the acquisition significantly expands and adds technical capabilities to Valin’s automation and robotics group.

Established in 1998, Dynamic Solutions specializes in precision motion control, machine vision, and collaborative robotics. Their team has over 120 years of combined experience in the industry. Dynamic Solutions also provides customers with consultation, application support, and custom positioning stage design.

Valin Corporation is the leading technical solutions provider for the technology, energy, life sciences, natural resources, and transportation industries. For 50 years, Valin has offered personalized order management, on-site field support, comprehensive training, and applied expert engineering services utilizing automation, fluid management, precision measurement, process heating, and filtration products.

“We are pleased to announce the acquisition of Dynamic Solutions,” said Anne Vranicic, President of Valin. “Dynamic Solutions has a strong reputation in the industry and maintains an experienced and accomplished technical staff. We look forward to having them as part of our team.”

“I am incredibly proud of our employees who embody the top-level expertise and exemplary support for which our company is known. Together, we have earned a stellar reputation in the California tech market,” said Greg Roettger, founder and President of Dynamic Solutions. “We are very excited to join the Valin team and look forward to a high powered, synergistic alliance. The enhanced resources and backing as part of Valin will enable us to elevate our ability to provide our customers with unmatched service.”

“Exit Strategies Group’s advocacy, professional guidance and close personal attention throughout the sale process was invaluable. Seeing offers from multiple buyers helped us select the best strategic partner. We couldn’t be happier with the results,” added Roettger.

This transaction demonstrates Exit Strategies Group’s strong commitment to providing sell-side M&A advisory and business valuation services to North American industrial technology companies.  Our automation expertise covers product manufacturing, value-added distribution, custom machine building, control system integration and repair services companies. Since our founding in 2002, we have advised on well over 100 M&A transactions.

---

For information about Exit Strategies Group’s M&A advisory or business valuation services, please contact Al Statz at 707-781-8580 or alstatz@exitstrategiesgroup.com. Deal terms will not be disclosed.