Exiting a business now is different from doing so a few decades ago. Today’s owners must focus on some key drivers of success: financial recasting, team building, identifying intangible assets, and becoming more flexible about deal structure. In any world these increase the odds of a successful deal, but in the uncertain COVID landscape, these keys to success grow even more critical.

Financial Recasting
You must be mindful of recasting before you share your financials with anyone else. This approach is an accepted GAAP decision that enables you to remove from your financials any non-recurring, one-time company expenses such as family perks, purchasing because of fire or theft, and a vast range of other expenditures.

A newer term—earnings before interest, taxes, depreciation, amortization, and COVID (EBITDAC)–also figures prominently. You will need to show how your business was performing during the pandemic, as well as what you did to prevent major declines during COVID.

The Importance of Collaboration
Buyers want to purchase companies with quality management teams in place. If the owner makes most decisions, they’ll want hard evidence that someone else is prepared to take on that role. They’ll also want to see how agile your company was in the face of COVID. What changes did you make? Did you keep your team and the public safe, and find ways to innovate? If you can show the steps you took to survive and grow during the pandemic, your business becomes a much more enticing target.

The Intangibles
More so than ever before, you must focus on the value drivers that make your business special. Take a long, honest look at your company, and highlight what makes it successful. Because you are so close to your business, it can be difficult for you to even see the intangibles. And of course, each buyer’s assessment of those intangibles will vary. A professional exit planner can help you take the most objective look possible.

Flexibility
Flexibility affords you more opportunities to move closer to a successful sale. Too much flexibility can erode deal value, though, so you must work with an M&A advisor who can help you identify key terms. Buyers will absolutely be more aggressive than ever before as they seek out great deals in turbulent times. Too much flexibility leaves you vulnerable, but insufficient flexibility will usually mean buyers move onto the next target.

About NuVescor Mergers & Acquisitions
At NuVescor, we align the interests of investors and business owners to enable the personal and financial goals of our clients. For over a decade, we have helped founders and owners of companies in the manufacturing sectors achieve maximum value for their companies. Together, we can provide business valuations, financial analysis, investment guidance, and business transaction advice for middle-market companies with revenues from $5 million to $500 million.

Owners of manufacturing companies who are planning an exit must consider a range of factors during the current unprecedented challenges. While some are delaying an exit altogether, others are anticipating last-minute term changes from buyers. Here are a couple of potential scenarios.

Considering an Exit
Business owners considering an exit must reassess their plans, and weigh whether the crisis will increase or decrease access to qualified buyers. Many PE firms have announced their plan to ramp up investing during the crisis, but it’s because they hope to find devalued companies. You may need more time to negotiate your exit, and you may find significant differences of opinion when it comes to valuation.

We are seeing strategic buyers in plastics and metals manufacturing willing to value companies based on Post-COVID financials because they need capacity and they need it now.

Negotiating a Sale
Stay-at-home orders have stalled many sales, and slowed the negotiation process to a crawl. No one knows what to expect. When will the virus end? When it does, will people’s consumption habits fundamentally change? Will suppliers survive? Who will be left?

Buyers are going to use the pandemic to drive down prices and get a good deal. When deals are in progress, buyers and sellers may debate whether the business is worth the original agreed-to price. This will vary from industry to industry. In some niches, company values may actually increase thanks to the loss of competition or an increase in demand for certain technologies. Even in areas where stay at home owners are no longer in place, businesses have had to make difficult decisions about whether to reopen, how to safely do so, and whether to open at full capacity. No matter where a business comes down on these issues, there is political blowback—whether from very cautious customers or from those who refuse to take any precautions at all. All of this can affect brand, the course of normal business, and the ability to continue increasing revenues.

Sellers must consider whether buyers are still able to make strong offers. The demand for seller financing will increase. Many buyers will low ball companies because they hope that sellers are eager to sell and leave the stress of business ownership behind. Desperation is the seller’s worst enemy here. If you can’t get the price you want now and you have reason to believe the business will bounce back, waiting for the dust to settle may be the most viable option.

However, this may be the time to get the best price you are going to see for some time. The bottom line is if you are even thinking about selling you need to get help understanding how buyers in today’s market are valuing your company.

Receiving Buy-Outs
People currently receiving buyouts may find that COVID affects their stream of income. There may be layoffs, salary deductions, and other strategies to reduce payroll. Companies may then look to former owners to further slash expenses, including by requesting lower or delayed payments. There may be more disputes over earnouts, especially since meeting earnout benchmarks is extremely unlikely during an economic crisis.

No matter what your exit plan is, having the right advisory team can help you make good decisions. There may be options you’re not aware of. Moreover, identifying certain weaknesses early in the process can help you better position your business for a lucrative sale. So work with an M&A expert to get the most from your exit, regardless of where you are in the planning process.

About NuVescor Mergers & Acquisitions
At NuVescor, we align the interests of investors and business owners to enable the personal and financial goals of our clients. For over a decade, we have helped founders and owners of companies in the manufacturing sectors achieve maximum value for their companies. Together, we can provide business valuations, financial analysis, investment guidance, and business transaction advice for middle-market companies with revenues from $5 million to $500 million.

Industrial companies know too well the value of cutting-edge tech, even as many find that it can be challenging to organically build the capabilities they need fast enough to compete. Mergers & Acquisitions (M&A) offers a shortcut. Rather than competing, industrial companies look beyond their own operations and acquire competitors and small companies who can advance their capabilities. Despite this, many companies fail to realize the value they hoped for from their mergers. Industrial companies must rethink the deal process so they can truly maximize value. 

The New Digital Deal
Digital growth is now a key motive for M&A. Acquiring new technology is now an equally important motivator as compared to traditional triggers. As many as 86 percent of companies have acquired or contemplating acquiring a digital business to gain access to new technology. 

Despite this, many companies leave their digital acquisitions as standalone businesses after closing. Integrating diverse cultures and skills can be challenging, but it is critical to digital acquisitions. Successful companies merge the two businesses, bringing together the best of each. 

Out With the Old 
In addition to accelerating M&A, technology is retooling the entire process. Companies that succeed at this process have fully or partially digitized M&A, saving time and money. Digital tech helps companies generate faster insights, run a more streamlined process, and measure potential value. The right applied analytics can help human analysts sort through vast sums of data, slashing due diligence and providing more actionable reports. Sixty-one percent of industrial businesses say that technology has already allowed them to reach their M&A targets faster. 

Our team at NuVescor use automated multi-directional surveys to collect strategic fit factors to better match buyers with sellers. Also, integrating the surveys, emails, phone calls, automated contact cadences, and web traffic information into our salesforce database, we are able to quickly process a large quantity of buyers and sellers.  

The Importance of Digital Leaders 
To optimize outcomes, the right leadership must be in place from the get-go. That means hiring digital leaders who know how to promote success. The majority of industrial executives say that the CIO must participate in the M&A process for it to succeed. 

M&A teams must include leaders who can guide businesses on a journey of digital transformation. They need to understand the digital capabilities of each company, and the approaches necessary for the acquisition to succeed. 

Spreading the Wealth 
Tapping into the power of thriving small companies offers a potent opportunity to those who undertake the process thoughtfully. Industrial companies should consider the following steps as they embark on digital acquisitions: 

1. Decide on the appropriate level of integration for new growth. The more acquisitions a business undertakes, the more necessary a holistic integration approach becomes. 
2. Devise a new process for digital mergers that includes valuation, target screening, and negotiation. The playbook that has been modified for the digital merger offers a key advantage. 
3. Capitalize on analytical and artificial intelligence to optimize end-to-end capacities for all purchases, both digital and traditional. Companies that can generate better and faster insights streamline the process, enabling them to extract greater value from the M&A process. 

The world is changing, and so too is the M&A process. Companies must get rid of their old M&A biases and adopt a digital-first approach. The businesses who get ahead in this process first are better positioned to win. 

About NuVescor Mergers & Acquisitions
At NuVescor, we align the interests of investors and business owners to enable the personal and financial goals of our clients. For over a decade, we have helped founders and owners of companies in the manufacturing sectors achieve maximum value for their companies. Together, we can provide business valuations, financial analysis, investment guidance, and business transaction advice for middle-market companies with revenues from $5 million to $500 million.