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Riding the tide - when is the right time to sell your services business?

9th April 2018

#M&A

Business owners sell their companies for a multitude of reasons, both personal and professional. Selling a company can be a tough process, and the steps involved can be both expensive and a distraction from daily operations. The process can also be an emotional one, as many entrepreneurs in the SME bracket will only sell a couple of companies during their careers, perhaps only one. With so much at stake, the question this article poses is when is the right time to sell? For most business owners, timing is the hardest part of the sale process to analyze. In terms of valuation, for many services industries the governing factors are relatively straightforward – typically based on profitability, location, revenue growth, balanced customer base, vertical market specialism and any relevant technology or branding differentiators. For those who know their markets and have strong visibility across the commercial landscape, identifying a potential buyer is likely not the most challenging aspect of the sale process either. Smart sellers seek a strategic match where the acquisition adds value to the buyer through diversification, technology, niche-market expertise or regional presence. What is often less clear to owners of small and medium businesses is timing – when to sell their business to achieve maximum valuation, secure the right strategic fit and avoid downtime on a false start. The balancing act performed by entrepreneurs involves acknowledging that the optimal moment to sell all or part of their company can be the very same moment when it appears there is every reason to retain full ownership – when wind is in the sales, revenues are climbing, new customers are rolling in month on month and the business has ample potential to move into new markets. Owners without a clear exit strategy risk falling into the trap of waiting for an undefined “right moment in the future” to sell their business, and may focus their energies on building towards this goal. For many this can mean a vision of a company with stable, consistent EBITDA which has acted on every easily visible market opportunity for expansion and diversification. In the eyes of a buyer, however, these elements do not always signal a great deal. If a seller is over cautious in waiting for the stars to align, this can portray a company that has lost its dynamism and future potential to an investor. A business can shift from an exciting asset to a bolt-on acquisition appealing to a limited pool of buyers, with forecasted ROI based on maintaining performance rather than continuing to innovate and grow at a fast pace. According to Crispin Pike, who sold his IT security business, Sysec, to Herjavec Group, “your business should be on the up when you offer it for sale, with growing profits, reinvestment, employment opportunities and new markets, geographies or product lines” (Telegraph). Ironically this may seem like the ideal moment to remain at the helm of the company, but for others it can be the ideal moment to sell. A surge of forward momentum and readily accessible future opportunity can excite investors more than a tried-and-tested balance sheet with no evident signs of a future uptick in performance. The right timing and sale scenario is always going to be a complicated decision for any seller, but some things that help give a better chance of capitalizing on the golden moment include: defining exit goals, listening to the market & talking to advisors. An exit strategy with goals is key - running a company knowing that the owner will want to sell it “one day” can mean that lucrative scenarios pass by them continuously and they are unaware. If a business owner’s goal is retiring with funds to finance a lifestyle, then this helps quantify the goal and identify when this might be achievable. Younger owners may wish to sell a portion of their equity to a larger buyer or a PE group and join an executive management team with a view to a second exit. Being aware of what an owner wants, be it liquidity or future upside, is invaluable in helping them run their company and shape it towards an ideal acquisition scenario. Business owners are also well advised to continually listen to the market and evaluate if M&A activity in their space is gathering pace or cooling off, and to track valuation multiples where publicized. These indicators can signal to an entrepreneur that it might be a good moment to re-evaluate their current exit time-frame. Many SME owners ignore obvious signals that buyers are active in their space because they are working towards their balance-sheet-driven future moment when they will be “ready” for sale. In some cases the market dictates the driving force behind acquisitions more than owner plans. Entrepreneurs can miss the boat by waiting too long, with buyer’s appetites and PE investment slowing down. Keeping open channels of dialogue is also essential for the process, as third parties and consultants can help provide some guidance and expertise within fragmented markets where public M&A data is less available. As long as conversations with prospective buyers, advisers and investors are always managed on clear terms, business owners can build valuable networks and relationships and position themselves to stand strong chances of achieving their goals.

Adaptive Globalization in Puerto Rico

1st March 2018

In March the Adaptive US team jet set to Puerto Rico! Covered with a landscape of mountains, waterfalls and the El Yunque tropical rainforest, this beautiful Caribbean island did not disappoint. Upon our arrival, after the NY team took a trip to Costco for the weekend’s provisions, we all met at our Airbnb oasis to greet each other and enjoy our first drink of the trip! From there we wasted no time and went straight to the beach for Beach Olympics! The Olympic games included whiffle ball, football (American) and a 3-legged race (with a photo finish)! The competition was fierce. After an eventful first day at the beach, we all made our way back to the house for a night of BBQing and good old-fashioned fun, soaking in the sunset in our backyard paradise. One of our favorite activities from the trip was the waterfall hike through El Yunque rainforest. Fun fact – this is the only tropical rainforest recognized by the United States National Forest System! The trek through the magnificent outdoors was worth the destination as we ended our route at a breathtaking waterfall! Some other highlights from our trip include chicken fights in the ocean, poolside gymnastic lessons by Meagan, Paul’s sunburn, and a couple nights out on the town in the capital, San Juan. On our last night, we took in the culture of Old San Juan, a neighborhood featuring colorful Spanish colonial buildings and a vibrant salsa dancing scene! All in all, we had a wonderful time in Puerto Rico. Many thanks to those who helped plan this trip!

Bikes of Berlin

4th February 2018

In June, the team in Berlin went on a bike tour of the city. The company that we found offered several different options, but we unanimously chose the tour named “Cool, unknown spots” that featured stops that are not on the typical tourist route. We started the tour in the historical Nikolai Quarter of the city, which was the site of the first settlement in what is today Berlin. We biked to the ruins of the Franziskaner Kloster monastery, which, due to its location over a meter below current street level, shows how the city has grown over the centuries. We then visited a model of the city, which highlighted buildings that have been built since 1990. We were amazed to see just how much new construction has been completed since the fall of the Berlin Wall. On several of the streets surrounding our office at Hausvogteiplatz, every other lot was empty until the 1990s, giving the central part of Berlin a Swiss Cheese character. Other stops on our tour included the chancellery office on the river Spree, the largest refrigerator in Germany near Checkpoint Charlie, and the former department store, Tacheles, which until recently was occupied by artist ateliers and was a mecca for Berlin’s thriving art scene. In all, the tour lasted about three hours and covered over 17 kilometers. Even those team members who have been living in Berlin for years learned lots of new information about their city. We were so pleased with the tour, we are looking to book another for later in the year.

Sabbatical Update

15th January 2018

Vacation days are difficult to make the most of. You don’t want to spend so much time out of the office that your billing dries up, you want to see new places, spend time with family, and have the chance to recharge your batteries. It can seem impossible to do all of the above with a single allotment of PTO days. And in most years, you have to pick your priorities: adventure vs rest, new places vs the trips to the familiar, etc. Most people have to wait until they have quit their job and have some time before their new gig begins to take an extended trip abroad and still have regular vacation days for family and recharging. Even then, you have to travel while knowing you don’t have an income and have to get lucky that you anticipate the change in jobs soon enough so that you have enough time to plan the trip of a lifetime. Thanks to our sabbatical program, I did not have to choose and got to do everything I wanted to. In 17 days, I was able to spend time in Rome, Pompeii, Siena, Florence, Pisa, Cinque Terre, Venice, Milan, Zurich, Lucerne, and Bern. 17 days, 11 cities, and 2 countries! From the Colosseum and the chaos of Rome to the serenity and cleanliness of the Swiss Alps, I got to experience more of Europe in a single trip while still employed than I could have ever possibly previously imagined. I came back re-energized by the work ahead. I had my adventure and saw more of the world than many see in a lifetime. In Italy I was awed by the beauty of the art and architecture. I was mesmerized by the views from the tops of mountains. But eventually, I was relieved to get back home where they take credit cards at all businesses, where your check arrives promptly at the end of a meal, and where I can enjoy the diverse world cuisine NY has on every corner. I was ready to resume my life again and move forward, satisfied that I got to live one of my dreams, and motivated by the company that gave me the opportunity to do so.