BUILT TO SELL
by Matt Thomas
A few weeks ago I met with a man who had recently wrapped up a surprisingly fruitful exit from the business he founded, owned, and operated for 20+ years. He was liquid and eager to deploy capital but before we dove into his opportunities for investment I asked him cautiously, “What kind of multiple did you get?” He looked both ways before leaning over the table and whispering enthusiastically, “22x!” I nearly spit my coffee out all over the table. 22x? Most business owners looking to exit can expect 2-3x, maybe 4-5 if they have carved out a niche with tremendous upside in their space, but 22x is unreal.
I peppered him with questions, wanting to know how this company in a saturated vertical was able to get acquired with that kind of multiple. Finally, I asked him what he believed was the primary contributor to his successful exit. “Well,” he replied, “I decided before we hung our shingle that our firm would be built to sell.” He proceeded to tell me that every hire, every strategic initiative, every budget planning meeting, every key decision was filtered through the same lens. Will the outcome of this decision make us more or less attractive to a potential buyer? I wanted to know how early in the game he had put together an exit strategy. His response surprised me. “On one hand I suppose the answer is as early as the day we filed our paperwork with the state, but on the other, I can tell you we never set a timeline. I always felt that if I ran this business until I retired that would be just fine by me.” You see, whether or not he actually exited the business someday was beside the point. He believed that if he ran the business and made decisions as if he were going to sell tomorrow that he would keep them laser-focused on being the healthiest organization they could possibly be. Increasing the value year after year was the natural by-product of this mentality.
Often, our consulting engagements are with organizations “in distress”. Common problems include taking on too much debt and winding up over-leveraged, running too “fat” with overhead that current revenue streams can’t support, dysfunctional org structure, toxic leadership teams, and more. The theme? Most business owners who find themselves in these situations did not think about how their decisions would impact their value. They took unnecessary risks or refused to commit a healthy growth curve, prioritizing revenue over quality–winding up in holes that take years to dig out of.
We recommend that business owners considering an exit commit to two years of “cleaning things up”. Taking the time and energy to shore up internal systems and processes, build a strong and steady sales funnel, and dial in the financials are mission-critical. For those eager to add a point or two, prioritizing healthy culture, fostering a dynamic training and leadership development environment, and getting crystal clear on the important stuff like vision, mission, and values will all serve to boost the confidence of a potential buyer. Too often business leaders get in the way of their own goals. If we are building our organizations to sell then the buck doesn’t stop with what we think and want. Our decisions will be influenced by what someone objective would find attractive. If our organizations are built to sell, then when that once in a lifetime knock on the door happens, we will be fully prepared to present a legitimately strong opportunity to a potential buyer.
Is your organization built to sell? Are you considering an exit and prepared if the opportunity presents itself? Our team strategy consultants help clients put together 2 year exit strategies designed to increase the multiple and sell at a premium. Let us know if we can help you prepare for a strong exit.