When is the Right Time to Sell Your Company?

If you’re considering selling your company, you’ve probably heard a lot of opinions about how to prepare for the process, who your best buyer might be, or how to best time the sale. While we’ve shared resources regarding the process and choosing a buyer, today we want to dive into the latter question of timing.

You may have heard advice such as “you don’t want to sell during a recession” or “starting a process at the end of the year isn’t worth it”. From our perspective as an investor and buyer, the timing of when to sell your company is less about these macro factors and more about your company and your personal goals.

Myth #1: Don’t sell during a recession or a soft M&A market

Likely the most common refrain we’ve heard in relation to timing a business sale is that buyers may arrive at a lower valuation based on macroeconomic factors such as a recession or a soft M&A market (defined by a decline in the volume of transactions), especially if your company expects a down year. The second half of 2022, all of 2023, and potentially Q1 of 2024 all meet the definition of a soft M&A market.

While it is true that the lower volume of transactions impacts fee revenue for investment bankers, it doesn’t necessarily impact the valuations at which high-quality companies sell. To put it another way: it would be a mistake to assume that because volume is depressed that price will be depressed, as this often isn’t true. In some cases, the dearth of high-quality companies from a particular sector in the market may actually result in a premium valuation for a high-performing company looking to sell during that market.

It ultimately depends on the buyer or investors you are evaluating. Partner-minded, growth-oriented investors expect to invest over a longer period of time (likely 3-7 years, depending on the investor), which encompasses multiple points in the economic cycle. That renders the current conditions at the time of purchase less relevant to their offer. When considering offers for your company, look to confirm that the offer is based on a long-term look at your past growth and a deep understanding of your company’s future plans.

Myth #2: Certain times of the calendar year are better for attracting more buyers or commanding a higher price

This misconception is likely due to the natural cycle the M&A market takes; slow around the holidays, picking up in spring, with a last “push” after Labor Day to ensure a transaction closes before December 31. For most buyers, though, it’s just not how they operate.

Most serious buyers and investors (particularly those with ready capital to deploy) are always looking for high-quality opportunities, whether the company begins a process the week before Christmas or in the middle of the post-Labor Day rush. The story is similar for strategic buyers, who have their own timelines based on their budget and growth plans, which may or may not align with the busier M&A months.

What Actually Matters #1: Your company’s position

Financial Position: Objectively, it is ideal to sell during a period of growth (hence why Myth #1 still lingers). If you are to go to market during a down year, it’s important to be able to explain why the dip is temporary and prove out the future growth plans.

Always keep in mind the long-term view that many buyers will take of the company. Even if you are experiencing a year of unexpected or rapid growth, many investors will view the one-year super growth skeptically unless it is backed by thoughtful projections, a solid sales pipeline, or other evidence to show the sustainability of that growth.

Operational Position: Depending on the operations of your company, certain times may be more ideal than others to start a sale process. Selling your company is a complex, time-consuming, and potentially disruptive process. Taking on this additional work while in the middle of a facility move, for example, or when your full attention is needed to drive key growth initiatives, may feel unmanageable. It’s also typically better to have any operational loose ends tied up prior to starting a sale to make the company more attractive to buyers. Examples include renewing any leases nearing expiration or completing a state-of-the-art equipment installation in order to present during a tour.

Management Position: Prior to starting a sale, you’ll want to be clear on the role you want to have in the company post-closing. Do you want to continue as CEO, managing day-to-day operations? Do you want to transition to a board-only role? Do you want to completely exit the business and retire? Along with this, it needs to be clear who will lead the company post-closing. How do key members of the leadership team fit into the growth plans? Are you looking for a buyer to solve for management succession, or to help build out a well-rounded executive team? These questions need to be answered before starting a sale, as it will be a key part of the story for buyers.

What Actually Matters #2: Your personal goals

The goals – both monetary and otherwise – you want to achieve with a sale can greatly affect the timing of the transaction. Part of this is related to the liquidity you want to gain from selling your company. Is the company in a position right now to command that price? If you wait a few more years to achieve your planned growth, can you reach your ideal valuation then? Having a target net proceeds in mind and discussing with your advisors can help determine if your company is ready for a sale now.

The reasons you have for a sale can also factor into timing. Are you trying to retire by a certain age? If so, the timeline for a sale may feel more urgent. Are you enjoying your work and simply want a capital partner to help you scale faster? In this case, there may be more flexibility to wait for other factors to align.

The question of when to sell your company does not have a clear, one-size-fits-all answer. Surround yourself with advisors – and ultimately buyers – who understand these nuances and who can give advice specific to your situation. The best time to sell is when the timing is right for you personally, when you and key members of your leadership team are ready to devote time to getting to know buyers during due diligence, and when there is a clear vision for the company’s future.