In Part I, we explored personal well-being strategies as a core foundational element to executing your M&A transaction. In Part II, we addressed defining key goals and objectives. Now, we look at the factors that could drive the timing of your decision and transaction.

Steven M. Rathbone – Vice Chairman & Managing Director, Investment Banking at Stout – shares his 20+ years of M&A experience, having advised some of the nation’s leading private companies, founders, families, and investors, in offering a definitive guide via a collection of experiences gained over dozens of complex transactions.

Timing will have a significant impact on quality, success, and value as you contemplate a transaction. Market conditions, industry trends, recent performance, growth objectives, and shareholder goals, among many other factors, all play crucial roles in determining the optimal moment to initiate a transaction process. Understanding and prioritizing these factors is critical to optimizing outcomes.

Assessing Timing

Timing is one of the most important elements to consider as you contemplate an M&A transaction. Quite literally, it can be the difference between success and failure, and an efficient versus painful process. It will impact where you land on the value spectrum and/or lead you to achieving all, some, or fewer of your overall objectives. Therefore, it requires:

• Careful personal consideration and attention devoted to planning and designing a strategy
• An understanding of market and economic conditions both macro and local, and more recently, geopolitical
• A degree of foresight with an ability to strike the delicate balance of trusting your instincts while assessing the facts
• A detailed yet flexible transaction timetable to underlie the strategy
• Obtaining the perspectives and involvement of key persons and stakeholders, both inside and outside of your business
• Consultative advice from your trusted executive or peer network and experienced transaction advisors

Timing strategy requires making a set of definitive decisions once you have assessed your options. Hitting “go”, “pause,” or “stop” could each see opportunity gained or lost, but definitive action on the back of a defined strategy, supported by strong analysis and planning, is typically best in either case.

Here, we consider a set of elements and factors which go into the decision-making process as you contemplate the timing of one of life’s more prominent and impactful events.

Internal Elements

First, let’s consider internal personal and business-related elements where you will exercise a greater level of control. Such considerations will inform your decision-making process and will work hand in hand with your consideration of external elements.

Business Performance and Operational Readiness

Ensuring that performance metrics are strong or trending positively, and that these accurately reflect the business’s current and recent performance, while being able to articulate and support the future growth plan, is essential for attracting buyers and securing favorable terms and thus must be included in any readiness assessment. This includes addressing any operational inefficiencies or management gaps.

The integration of new technologies can significantly enhance a company’s readiness, value proposition, and operational efficiency. Businesses that leverage cutting-edge technologies are often more prepared to generate quality reporting and data which a buyer requires to conduct due diligence.

Shareholder Goals and Motivations

Understand and document the diverse goals and motivations of shareholders to achieve a smooth transition and optimal timing. From aligning personal lifestyle changes to balancing financial objectives, these factors collectively contribute to shaping the decisions that will guide the future of both the business and its stakeholders and thus factor into timing strategy.

Financial Objectives

Is the business currently performing and growing to a level which will satisfy your financial objectives from a transaction? Should you seek to go to market in the near-term? Consulting your network and advisors is critical in understanding how the business will be perceived, from a perspective of value, in the market and thus will materially impact timing.

Personal/Lifestyle

For many business owners, the decision to sell is closely tied to personal lifestyle aspirations such as spending more time with family, pursuing passions, or reducing the daily stress associated with running a business.

Assess how your personal objectives align with the potential timing of the sale and how these objectives factor into strategy. Articulating your personal objectives to buyers and ensuring the company is in a robust position to support these objectives going forward is critical.

Ownership and Shareholder Dynamics

Disparities in ownership objectives can cause delays. Depending on the existence or structure of shareholder agreements, non-operational and/or minority shareholders may wield influence over the sale process, therefore addressing their concerns and aligning shareholder interests with the future goals of the business and narrative around the sale is essential lest this cause delays or disruptions in optimizing timing.

External Elements

When contemplating timing strategy, internal factors are only part of the equation. External elements, which can be unpredictable, at times volatile, and usually out of your control, will impact the timing and prospects of success.

Despite the general inability to exercise influence over most external factors, understanding these elements and designing a plan to navigate through or around them can help business owners strategically position their companies for maximum value, a streamlined due diligence process, and an overall smoother transition.

Market Conditions and the Economic Climate

Public equities markets are often one of the best indicators as to investor sentiment and perception of both the broader economy right down to the individual company whose stock is being traded day to day. Paying attention to public market sentiment and identifying and gauging performance of public comps in your sector are necessary considerations as you build your timing strategy.

Often overlooked but of equal importance is activity in the bond markets, primarily sovereign/government debt and corporate debt. Bond prices act inversely to yield; therefore, if yields are dropping, investors may be identifying safe-haven assets or anticipating lower interest rates in the future. Inversely, if yields are rising then investors may be chasing higher returns in other asset classes (i.e., public or private equities) and taking a “risk on” approach.

The state of the buyer market and prevailing levels of interest will fluctuate based on macro, domestic, and local economic conditions and industry trends. It is a key element when determining timing of market entry.

A golden rule which all advisors should convey to their clients is that if a sale process is a goal or a determined eventuality, then it is always prudent to be prepared even when the launch timing is uncertain. This enables shareholders and management to retain optionality on market entry and does not force a rush or cause a costly delay while enabling flexibility in designing and if necessary, modifying the timing strategy. If there is a key piece of advice to glean from this article, this is it.

A robust buyer market, characterized by high demand and a competitive environment, can lead to a broader option set for a seller and their advisors to work with, generally creating a more favorable outcome. Why not be prepared to act as market conditions align?

Conversely, a limited buyer market may necessitate adjustments in go-to-market timing and strategy, or lead to deal terms not initially anticipated during the planning and preparation process.

Optimal timing will also hinge on industry-specific trends and considerations. Industries evolve, driven by changes in consumer preferences, technological advancements, regulatory shifts, supply chain evolution, labor availability and costs, and a myriad of other factors. Executives should understand where the industry is headed, why, and how a company might react to the conditions it is subject to.

Trade, Regulatory, and Legal Environment

Understanding and being prepared to navigate the trade environment is key to determining the viability and timing of a sale process. As we’ve seen in recent weeks, the impact of announced tariffs, still in the implementation phase, are being anticipated. Markets are reacting rapidly and in a volatile fashion, striving to determine the broader impact on domestic and international supply chains, cost structures, inventories, cost of capital, employment, and many other factors.

The regulatory environment and the introduction of new compliance measures should be watched carefully and considered as part of your timing decision. Ensuring your company is compliant with current regulations and prepared for potential changes is key. Taking a proactive approach enhances the company’s preparedness and removes obstacles which can otherwise impact a competitive process and disrupt important momentum.

Legal challenges, including pending litigation or unresolved disputes, can complicate the sale process and thus require consideration as to their status and probability of resolution as part of the overall timing consideration.

While certain litigation can be managed via the due diligence and definitive documentation drafting process at the back-end of a transaction, creating a plan in conjunction with counsel and addressing a strategy around legal issues before initiating a sale may be prudent.

Balancing Internal and External Factors: Crafting the Right Timing Strategy

Successfully crafting a timing strategy involves an understanding of and balance between internal and external elements. This delicate and detailed process should be constructed in conjunction with your advisors and can significantly influence the timing and success of the sale.

A prescriptive and holistic strategy would comprise of the below key elements (not exhaustive) to consider:

1. Mapping the general state of the market – a key area where your advisors can assist in compiling their knowledge with yours while painting the bigger picture with you as it pertains to the current market environment. Consider:
   • Macro and local economies and relative strength thereof
   • Interest rate environment and availability of financing
   • Public company and debt market sentiment and performance, overall index performance (i.e., S&P 500 relative to your industry comp set)
   • Relative sector performance and forecast performance
   • Strategic buyer and private investor activity in your sector over the historical period
   • “Dry powder” private equity capital accumulation
2. Understanding the regulatory and political environment, potential changes, and the impact on your transaction once you enter the market:
   • A “stress testing” as part of your planning of potential outcomes and impacts under changing regulatory and legal conditions should be conducted with your management team and advisors
3. An internal inventory and indexing of your business – also a key area where your advisors will assist in identifying pros and cons of the current condition of your business:
   • Quality of historical accounting records (i.e., audit, review) and accounting practices
   • Corporate entity structure and potential tax implications of the structure under various sale scenarios (i.e., asset vs. stock)
   • Internal tracking of KPI metrics and quality of your dashboards
   • Historical trends and the drivers/narratives behind these
   • Construction of a detailed bottom-up, supportable forecast
4. Pre-market due diligence:
   • Exploring and obtaining a quality of earnings (sell-side) typically for the ~ three-year and trailing 12-month historical periods
   • Considering Legal, Tax, Employment, IT, Pension, or Environmental due diligence reports, areas where investors/buyers may drill-down under certain circumstances
5. Pre-market buyer outreach or fireside chats in advance of a market-entry decision:
   • Your investment banker can connect early and discreetly with market participants directly (under confidentiality agreements) to gauge market, industry, and other critical feedback and intelligence in advance of a broader market entry/launch
   • It is critical you hire an investment banker who can demonstrate long-term relationships with key strategic and PE buyers in the market and an ability to attain intelligence during these pre-market sessions.
6. Ensure your strategy enables flexibility in the case a “pivot” is required:
   • Given the many external factors, you will never be able to exercise complete control over the process evolution and outcome, and inevitably you must always build the ability to “pivot” into your planning
   • Common reasons for a pivot can include the unexpected onset of market volatility at an inopportune time; market rejection of valuation expectations, preferred structure, or perception of the opportunities the company represents; diligence findings which stall or slow a deal; and so forth

Role of Advisors and Consultants

Advisors and consultants who are operating in the markets and have clients at various stages of a transaction on a day-to-day basis are a critical component in navigating the complexities of a business sale. You should aim to meet advisors who are experienced in addressing the complexities of a sale, situationally aware, experienced and aligned with your goals, highly knowledgeable on your industry, and even better, who come highly recommended to you by a highly trusted business associate, friend, or member of your network.

The “courting” process should involve a building of trust with such professionals, as their expertise provides critical insights into both internal and external timing factors and will always impact the probability of success both overall and as it pertains to developing prudent timing strategy and execution.

Trust is cultivated through open communication, transparency, and a shared commitment to achieving the best possible outcome for the business owner. Advisors who recommend or appear to push a “one-size-fits-all” approach should be viewed with caution, as every M&A transaction is different and unique. Advisors should provide objective perspectives, challenge assumptions, and ensure that all aspects of the sale are comprehensively evaluated. Their experience in handling previous transactions (hint: you can check references) enables them to identify potential pitfalls and opportunities that business owners might overlook.

Ultimately, balancing internal and external factors and distilling the knowledge of these factors into a strategy is a nuanced process that requires artful planning, deep knowledge, flexibility, and expert guidance.

By aligning internal and external readiness, engaging in scenario planning, and building trust with experienced advisors, business owners can attain a higher degree of confidence in designing a detailed timing strategy and optimizing market entry while maximizing probabilities of success.

Part IV of this series will address the key expectations to have when moving through each stage of the sale process: preparation, execution, and closing. In the interim, Steve welcomes a discussion with you in confidence should you wish to touch on any of the elements herein or discuss a topic of your choosing.