“To Sell Or Not To Sell; That Is The Question”

Michael FlockManaging A Competitive Position Leave a Comment

To Sell or Not To Sell My BusinessShakespeare’s Hamlet has lessons for all of us, particularly during these turbulent times when our choices and decisions are painful at the very least. In a moment of his struggle, the Prince of Denmark declares:

To be or not to be, that is the question: Whether ‘tis nobler in the mind to suffer The slings and arrows of outrageous fortune, Or to take arms against a sea of troubles And by opposing end them.

What can we learn from Hamlet’s failures? How can his dithering amidst the turmoil at Elsinore apply to our tumultuous world of credit, collections and debt buying?

Since the crash and beginnings of the Great Recession in the fall of 2008, business owners in the credit, collections and debt buying industries have faced incredible challenges. With consumer credit shrinking, with charge off volumes stagnating, and with capital markets contracting, agencies and debt buyers alike face threats to their very existence. Many owners report that revenues and profits are down. Therefore, enterprise values are down. Companies are being sold for rock bottom values.

Owners are constantly asking: “Should I or should I not sell my business?” This is true even in good times. In bad times, when capital is scarce, profits are declining, and valuations are soft, that question is asked even more. Many owners hesitate out of fear that good times and better values are just around the corner.

There is never a perfect time to sell. Don’t try to outwit the economy and capital markets. When even our Fed Chairman Ben Bernanke states that we are in a period of “unusual uncertainty”, there is no way anyone else can perfectly forecast our economic future.

But in spite of the current unfriendly markets, there may be some reasons to sell anyway. Here are a few:

  • You actually get an unsolicited credible offer with a fair valuation. Most likely this will be from a strategic buyer who can take cost out of your business during integration and boost the profits of the combined entity. This means the buyer pays you a fair multiple (4x cashflow to 6x cashflow) as calculated on a stand-alone basis, which translates into a lower multiple on a combined basis after considering synergies, cost efficiencies and resulting improved profit margins of the new company.
  • You consider selling your company to your management team through a combination of senior debt and a seller’s note. You can maintain control until you receive all your cash.
  • In selling the company to your management team, you could evaluate doing a leveraged ESOP. ESOPs typically pay just under what a strategic buyer would pay and you can also benefit from avoiding capital gains taxes, an important fact in light of the tax increases facing us in 2011.
  • You need to raise capital to drive growth. The capital raise may trigger a change in control. But, without the capital, you face decline and less value long term. With capital, your shares may be worth more than the in the status quo and potential decline even though you may have to give up control.
  • You’re not having fun anymore and are losing motivation and focus. If your business is stagnating as a result, you should consider a sale.

Throughout Shakespeare’s tragedy, Hamlet hesitates and analyzes, and contemplates, and vacillates. He fails to see the perils of paralysis. Yet, ironically in the end, Hamlet does realize the importance of preparation and action. Just before his duel with Laertes, his enemy, he cries out: “The Readiness is all!” However, it is too late as his adversary is better prepared, having dipped his sword in poison beforehand. He strikes. Hamlet dies.

So whatever you do, don’t wait for things to get better. Don’t imitate Hamlet and accept the status quo, postpone decisions, and vacillate. Be prepared for a sale in the event that it makes sense.

Here are some key things to do:

  • Get your financials in order.
  • Engage an advisor who can create many alternatives for you and therefore give you leverage in any situation.
  • Target types of buyers who are likely to give you the right price, have financing, and means to close the deal.
  • Craft a solid business plan with a vision and a story that shows your value.

Have a plan. Act on the plan. If only Hamlet had a will, a vision and a plan.

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