To sell or not to sell. That’s the question facing many family-owned and private-equity-owned companies that are eager to sell all or part of their businesses in order to take money off the table or cash in on their investments. A panel of seasoned PE investors and legal and financial advisers volleyed views on the current climate for exits during a lively discussion at the 2013 Michigan Private Equity Conference.
“Now is the time to sell,” said Sandra Bosela, managing director of OPTrust Private Markets Group, a mid-size Canadian pension fund that manages a portfolio of 20 companies. “It’s definitely a seller’s market. People are canvassing the market, and we’re seeing a strong desire to put capital to work. The process is getting more compelling. It feels like 2006 again.”
“It’s a great time to sell a company, either family-owned or PE-owned,” commented Michael Faremouth, managing director of Linsalata Capital Partners, which invests in companies worth between $40 million and $300 million. “In our size range, we’re seeing more activity.”
“For businesses with a good track record, confidence in the economy and a simple story, it’s a terrific time to sell,” remarked Bruce Engler, a partner at the law firm of Faegre Baker Daniels. “Buyers are desperate for deals, so if you have a good deal to offer, now is the time to put it out there.”
With a hot market and stiff competition for high-quality deals, buyers need to do their homework before negotiating a buyout or leveraged recapitalization. Prior to entering the bidding process, the panelists said they carefully evaluate a target company’s:
- Valuation
- Track record
- Management team
- Growth strategy
- Forecasts
Company owners, who now have more clout to negotiate favorable deal terms and conditions, also must take certain steps to ensure a successful sale. The panel’s advice included:
- Access market conditions to gauge whether it’s a good time to sell.
- Look for buyers who have performed sufficient due diligence.
- Choose the right bidder at the right time.
- Accurately report company earnings and profit margins to avoid the risk of a retrade.
Looking ahead over the next 12 months, the panelists predicted the climate for exits will remain robust, especially in the middle market area. “There is still plenty of capital from PE firms to put to work, so I expect the environment will support continued deal activity,” Faremouth said.
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