Readiness provides the bedrock upon which successful deals happen. Much like attempting to predict the stock market’s fluctuations or pinpointing the exact moment an avocado reaches peak ripeness, the optimal moment to sell to your buyer successfully is rarely driven by your calendar.

Picture this: your business is a ripe avocado, ready to be plucked from the tree. But just because it’s ripe doesn’t mean a buyer is waiting with open arms. The buy-side, much like the whims of avocado aficionados, has specific times when they’re hungry for acquisitions and times when they’re not. One moment, you may find yourself inundated with interest, and the next, it’s as quiet as a deserted produce aisle.

The Misconception of Readiness

A common fallacy among business owners is the perception of selling their enterprise as a unidimensional decision driven solely by certain personal milestones, such as reaching a particular age. While this mindset seems logical, it overlooks the multifaceted dynamics of the M&A environment.

Much like an avocado’s ripeness is subject to external factors such as climate, market dynamics, financial health, and internal systemic stability, potential buyers’ appetites are influenced by these factors.

Acknowledging this shifts the focus from a you, seller-centric viewpoint to a holistic perspective, considering both ends of the spectrum.

Understanding the Buyer’s Cycle

Like nature, the corporate buy-side operates on its inherent rhythms and cycles. These rhythms dictate a company’s willingness and capacity to pursue and consummate acquisitions. Industry downturns, economic recessions, or internal restructuring can dampen an otherwise eager buyer’s appetite.

Conversely, phases of economic prosperity, strategic realignment, or pursuit of competitive advantage can spur a flurry of acquisition activity. Recognizing and aligning readiness with these cycles is paramount, turning the art of timing from a speculative gamble into a strategic maneuver.

The lesson from the avocado farmer is about being prepared. Preparation is also multifaceted and includes preparing the business, your estate, and yourself mentally.

The Role of Market Conditions

Economic indicators such as interest rates, inflation rates, and overall economic growth can facilitate or hinder acquisition activities. A robust economy, characterized by low-interest rates and inflation, generally augments buying capacities as financing becomes more accessible and companies seek to leverage growth via acquisitions. Conversely, in economic downturns, the focus often shifts towards consolidation, cash preservation, cost-cutting, and risk aversion, making the appetite more tepid. You have experienced these cycles directly and understand your mood to invest in growth or preserve cash.

Financial Health and Internal Stability

A potential acquirer’s financial health and internal stability are critical determinants of their buying behavior, which can also be counter-cyclical. Companies in a robust financial position, with ample cash reserves, access to cheap capital, and healthy balance sheets, are more poised to undertake acquisitions, especially coming out of a soft economic cycle. They view M&A as accelerating growth, such as entering new markets or acquiring strategic assets.

Conversely, companies grappling with financial uncertainties or operational instabilities are likely to deprioritize acquisition initiatives, focusing instead on stabilizing and fortifying their core business.

Preparing for the Optimal Timing

The essence of optimizing timing for selling your business does not simply rest on observing the external environment but also on its internal readiness. Preparatory measures such as having streamlined operations, ensuring financial, legal, and people records are in order, and building a compelling narrative around the business’s value proposition can significantly enhance attractiveness to potential buyers.

Some of these may seem obvious. If you were to acquire a business like yours, would they have everything to hand immediately, or would you need to spend late nights and weekends putting this together?

Furthermore, strategic planning, which enables you to identify possible synergies with buyer personas, can provide a competitive edge, making your business a target for acquisition and a strategic imperative for the buyer.

Strategy, Not Chance

Relying on luck that all will align on a date you predetermine is akin to setting sail without a compass and hoping that the earth is not flat. Strategic preparedness involves thorough market analysis, understanding potential buyers’ cycles, and meticulous internal assessment. To get started, you can use well-known frameworks such as SWOT (Strengths, Weaknesses, Opportunities, Threats) and PESTEL (Political, Economic, Social, Technological, Environmental, Legal), combined with financial forecasting, which offer valuable insights into the external market and your internal readiness.

Remember to focus on this from a sophisticated buyer’s perspective: why would they see value?

Running a business purely for personal income attracts a different buyer group than a business built for growth or scale.

What can you do?

Here are some of the actions you can take to improve your readiness.

Prepare an Exit Vision and Strategy Early

Start with Why. What is your exit vision and why? What will that enable you to do? What will be the impact on your family? Community, and so on?

Then, start crafting your personal and business exit strategies well ahead of your intended sale date or life event. Personal examples include understanding your wealth gap. What structures need to be implemented to minimize your taxes? Business examples include developing your management team and ensuring the company has best-in-class operations and profits.

Enhance Your Value Proposition

There are several ways to calculate the value of a business. A standard method used by private equity is:

Valuation = EBITDA x Multiple.

You know your adjusted EBITDA. Do you know where you would land on the multiple scale?

Your level of differentiation drives the Multiple. This can be like playing the child’s game of chutes and ladders when you don’t know what drives a Multiple down or up and are hoping for a good dice roll. Beyond financial health, consider what makes your business unique and whether it could easily be transferred into another organization without you being at the center. Examples include proprietary technology, customer relationships, or market positioning.

Build your Advisor Network

M&A is a complex field requiring specialized knowledge. Building and getting to know your team in advance helps you prepare technically and emotionally.

The minimum advisor team to get started includes:

• Financial Advisor.
• Accountants with Exit Experience.
• Tax Advisor / Trust and Estate Attorney.
• Experienced Exit Readiness Consultant / Coach.
• M&A Advisor.
• Corporate Attorney, and
• M&A Attorney.

Understand your Market Cycles

Stay abreast of industry trends, economic cycles, and potential buyers’ financial health. Tools like Google Alerts, industry reports, and financial news can be invaluable sources of information.

See my post on the different cycles and tipping points.

In conclusion, while the precise timing of a sale cannot be pinpointed with absolute certainty, being ready and having an acute understanding of the market and buyer cycles can tilt the scales in your favor. Many businesses sell because of a life-changing personal event; being prepared reduces the impact of a fire sale.

The goal is not to predict the future but to be thoroughly prepared for when the future arrives. In navigating the intricate dance of mergers and acquisitions, let strategy, not chance, be your guiding light.