It may be counter intuitive, but selling your business during an economic downturn could be advantageous. That is, if it is done properly.
In a recent article in the Globe and Mail, “Economic Slowdown Speeds Up Drive for Acquisitions”, Jacoline Loewen discusses why owners of businesses should not necessarily shelf plans to sell their companies during an economic slowdown. In fact, the smart ones, she writes, actively seek out buyers during this time. Slowdowns make it harder for companies to increase revenues by building capacity through organic growth. Acquiring smaller businesses is a way for larger companies to continue to grow even during a downturn. However, in order to ensure a successful outcome, sellers must actively seek out buyers and determine in advance how their business and customer profile can add something unique to a particular buyer, what synergies and economies of scale would be achieved, and what their business is worth. On this last note, the writer argues that many sellers make the fatal mistake of conducting serial negotiations which can be a recipe for a poor valuation.
What the article does not mention is that selling during a downturn could also be prejudicial to sellers, as the purchase price is often based on a multiple of earnings, which would necessarily have to take into account the fact that earnings may be declining. Some buyers may also be more focused on cutting costs and preserving capital during a downturn rather than expending valuable time and resources on third-party acquisitions. This is not to say however that undertaking a sale during a slowdown cannot successfully be achieved.
In my experience, prior to undertaking a sales process, a smart seller will often have already gone through its own consolidation strategy whereby revenues and earnings are increased through one or more add-on or roll-up acquisitions. This process will often serve to prepare the seller for its own ultimate sale. Sellers would also be well advised to engage an expert business valuator who can provide an objective determination of a business’s worth. A reputable M&A advisor could also assist in identifying target buyers, preparing a sales booklet (also known as a confidential information memorandum) and running a sales auction, all with a view to maximizing sales proceeds.