Should you wait for that big sales contract before selling?

If you are expecting a big sales contract before selling, which you believe will substantially increase the worth of your company, should you wait?  It may seem like the sensible thing to do. But you need to look at all the possible outcomes and other factors that may come into play before making that decision. To make the right decision look at this contract from the viewpoint of both the acquirer and the seller of the business.  What questions would or should you be asking?

So firstly from the viewpoint of the acquirer:
  • Suppose the company they are acquiring has just received a big contract. Then how much do they want this contract and is it going to lose its value?
  • When the company they are acquiring is likely to receive a big contract, how much is that contract worth?
  • What percentage of the company’s revenue would the contract provide and would it inhibit other parts of the company’s business?
  • Will the contract provide ongoing business?
  • What risk is there if the contract falls through or goes wrong?
  • Has the company got all the resources to keep its side of the contract
  • Is there more potential that can be gained from the contract
And secondly from the viewpoint of the seller:
  • How long will the contract take to materialize? Does the seller have time to wait that long.
  • What would be the effect if the contract falls through or gets delayed? Would this have an adverse affect on the company?
  • Is there a possibility of a bigger contract after this one? How has the company grown in the past?
  • The selling process usually takes about a year. So let’s say selling is left until after the contract has been clinched. Then will it still have the same value further down the line?
  • What is the competition like and how might it change over the next year?
  • Also what is the market like? Are there changes happening there?
  • Perhaps, most importantly, following on from these last 2 questions is to take into consideration if there needs to be more investment and energy put in the business in order to grow. A key question then needs to be asked about whether the seller has the time and energy to avoid devaluation in the business whilst holding off a sale.  The flip side of this is to consider if an acquirer may be in a better position to run the business over this coming time period and therefore the business would be of more value to them now than it would be in the future.
Maybe the key consideration that affects the final decision about the right time to sell is the reason behind the desire to sell the business. If:
  • the owner has not got the enthusiasm, stamina or energy to keep the business running at its optimum, then it is better to sell sooner rather than later.
  • there are health reasons, other lines of business or personal matters that are taking up too much time, then it is better to sell sooner rather than later.
  • the business looks like it has more potential now than it will possibly have after the contract is over, then it is better to sell sooner than later.
  • an acquirer is likely, with renewed enthusiasm and the right skills or strategic fit, to help the business grow better than the current management, then it is better to sell sooner than later.

Does the company need the backing of a larger business to get to the next level?  Then it is time to start that sales process.

Professional advisors in business mergers and acquisitions make it is possible to find the right acquirers. And with expert help you can continue concentrating on running the business while they do the negotiating.  It may be that you need to be willing to make a deal with earn-out. And maybe, when the right buyer buys the business, the pay-out may end up being worth more to the seller. Maybe even more than they would have made in holding out.

In summary

When it comes to Selling a Business with a large contract in the offing, it can still be a good time to sell.  It can often not be beneficial to wait for the contract to be completed.  Consideration needs to be given to the reason for the sale. And if an acquirer is likely to help the business to grow better than the current owner. This maybe due to circumstances, skill sets, backing or other reasons.  Mergers and Acquisitions Advisors are helpful in finding the right acquirers. Who may want to invest in the future and can deal with the negotiations.

 

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