M&A Timeline and M&A Process

By Generational Equity


When we meet with business owners one-on-one at our weekly conferences, we often ask them What is your expected timeframe for exiting their businesses? Quite often this question is greeted with a blank stare. If this is how you would react if we were to ask you that question, don’t feel badly.

Surveys indicate that the vast majority of business owners have never considered the timeline for their exit. For example, according to a study conducted by Whitehorse Advisors, “96% of baby boomer business owners agreed that having an exit strategy was important, but 87% do not have a written exit plan.” If you were born between 1946 and 1964, you fall into the baby boomer group.

Our experiences reveal the same type of statistics. Business owners are simply too busy or are unaware of how vital exit planning is to sell a company. Every business owner will eventually be faced with the decision of what to do with his or her company and they need to be fully informed about the M&A process. If you are like most entrepreneurs we meet, most of your assets are tied up in two items: your home and your business. Chances are good that your entire retirement will be dependent upon what you do with these two items.

Components of an Exit Plan

A formal exit plan should cover two key issues:

  1. How much capital will you need post-sale?
  2. When do you plan on exiting?

Answers to both of these are critical in the M&A process. The first question is unique to each individual we meet. Some of you are years away from retiring but you want to exit your company and move on to your next adventure. Others are at the point of being exhausted with running a company and simply want to retire. Under either scenario you need to meet with your financial planner and discuss how much money you will need when you eventually move on. This is a key step that many people never take.

The question is this: If you need $3 million to retire but your company is worth less than this, how will you know that exiting right now is not the best plan? And how will you know that you need to develop strategies to build your value? You won’t. The first step is to meet with your financial planner and determine how much money you will need. Then, have your company valued by an experienced M&A advisory firm to determine what it is worth today. The first step in the Generational Equity exit planning system is a thorough and complete business valuation. 

Sell When the Market is Right

As for the “when” to exit, this part of the M&A process is dependent on two factors: you and the market. Only you can decide when you feel the time is right to move on. Some owners we meet with have been running their companies for decades and are at the age when retirement is near. Others are much younger but have decided that other things are more important in their lives right now than managing the business daily. Again, only you can fully internalize this and make a decision. We suggest that you don’t make this decision alone. Meet with your spouse, children and other trusted advisors. This will possibly be the most important decision of your life so make it wisely.

However, the other issue you need to consider is the market. Everyone wants to time their exit at the top of the M&A cycle. This is hard to time indeed. Three key issues to consider:

  • Cap Gains Taxes
  • Interest Rates
  • Buyer Activity

Right now we are seeing the rare convergence of all three of these factors. Cap gains taxes are at a historic low and should remain so through the end of 2020. This means that when you sell, you will retain more cash at closing.

Likewise, interest rates are at an all time low, helping to enhance current business valuations. If it costs less to finance a deal, the higher valuations tend to be.

Finally, both corporate and financial buyers have excess cash set aside for acquisitions. So as you look at the timing of your exit, consider not only your personal factors, look at the current market trends and sell when the market tells you to sell.

Be Proactive – Plan For Your Exit

If you haven’t developed a formal exit plan and a timeline for your exit, I would invite you to attend one of our free informational exit planning workshops. Entitled “How and When to Exit your Business for the Most Profit,” the conference is designed to help you learn more about the overall M&A process, but specifically what you need to do today to begin preparing your company for your exit. 

Bottom Line

Do not put off exit planning or learning about the M&A process. If you do, eventually external circumstances beyond your control will force you to exit not when you want, but when you need to. When that happens, you usually will be forced to sell at a discount. Don’t make this mistake!

© 2021 Generational Equity, LLC All Rights Reserved

Carl Doerksen is the Director of Corporate Development at Generational Equity.