Insights | 26 Jun 2024

Buying, selling or merging? Think ahead

Plan for the future, don’t hope for the future.

If you are a business owner or running a company, have you thought of selling? Have you thought about generational change and when you might like to move on or retire? Running your own business can be exhausting and suffocating. You can easily become trapped by your own success, with your equity locked up after years of hard work, with no way out to realise it. Building a business can take years. Rarely does a business meet success early. It can take hard graft, weathering economic cycles, and usually a bit of luck, to reach the peak of success. So why then do all of this, just to rely on the hope that someone will turn up, acknowledge and reward you for all of your efforts at the end? Plan for it.

Equally, buying a business rarely happens overnight either. It can take time, a lot of planning, and patience. Occasionally, turbulent markets and tides of failing businesses, as we’re currently seeing, can present opportunities for good buying or merging with distressed businesses that have good bones or a strong brand, but bare cupboards. However, this is rare and relies on good timing and a bit of luck on both sides for your own business to be in the right financial state to buy another business as well.

The right opportunity

More often, the best buys or partnerships come from well worked strategy and targeted research for accretive opportunities with financial upside, or geographic or demographic expansion, or with opportunity for market diversification and risk management. The best opportunities almost always also come with a great deal of patience.

Buying, selling or merging requires a counterparty equally motivated to enter into the same transaction. And that isn’t always the case. Finding the right opportunity to buy or merge doesn’t always mean the other business wants to do the same thing. And just because you may decide your business is ready to sell, doesn’t necessarily mean there is a willing buyer.

So how do you give yourself the best opportunity to buy, sell or merge?

Plan ahead.

This might sound boring or obvious, but it is a timeless, proven approach.

Plan and plan again

When starting a business, think ahead about what success looks like, personally, and financially. If in business with others, have those same conversations with them, so you are all clear on your personal and financial goals. Revisit these goals regularly, because they will change over time.

If you’re lucky enough for your business to establish and mature, think of where growth will come from organically and inorganically (growth by acquisition or partnership), and where opportunities for inorganic growth may live. Think of how you will fund that growth. How will you manage and support that growth? Engage in markets or targets of interest early. Often the most successful acquisitions or partnerships come from periods of dialogue and exploring mutual interest. There may be opportunities for less common funding of those opportunities such as vendor financed or time based earn outs, or share swaps, which may be added benefits.

Maximise your value

Some sources including the ABS suggest around 60% of new businesses fail within 3-4 years. This isn’t a great statistic to sleep on if you own or run a business. Whether it’s true or not, if you do manage to get your business to the point of maturation and survival, then why, after defying all those odds, would you leave it to chance to realise reward for all your efforts? Even if a sale or divestment isn’t on your radar foreseeably, plan for it like it is. Establish good governance practices early. Keep clear records and reconcile financials promptly. Build strategies around key person risks and business diversification. Make a plan and work on it regularly. Even if an exit isn’t in your foreseeable business plans, assume that it will need to be at some point. Because you never know when the opportunity might present itself, and you may not get another one.

Buying, selling or merging can seem like monumental or far-fetched considerations to some. But they need not be complicated. Proactively planning for it can ease the task and increase the probability of success. Seek help if you need it, especially through the growth stages of your business, and embrace independent counsel and support. Building better habits today breeds better outcomes tomorrow.

Contact Pilot

If you would like more information or assistance with any of these areas, including mergers and acquisitions, contact Dan Hastings or your Pilot advisor on (07) 3023 1300.

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