Experts offer insights on family business mergers and acquisitions in a virtual panel discussion

Want to sell your family business? Remember this: Buyers are more interested in data points that could reveal future earnings than those that show how you’ve done in the past.

That was one of the key takeaways from a recent virtual event, “Is Now the Right Time to Buy, Sell or Invest in a Family or Family Business?” The event was hosted by the New Jersey Association of Commerce and Industry.

Mike LaForge, member of SobelCo, Cindy Meyer, president of Ridgewood Moving Services, Franco Pietrafisa, partner at Archer Law, and Alan Scharfstein, founder and president of DAK Group, offered insights on what companies should do to prepare for a sale .

Any company that wants to sell must make an accurate assessment of future risks.

Future risks include anticipating activities from customers and suppliers in addition to employees.

Mayer said she has prepared documents and a strategic plan to deal with several “what if” situations along with building a “dream team” that can help her take the company into the future.

When and how should every business owner prepare for the eventual sale of the company?

The leaders agreed that preparations should begin anywhere from a year to 18 months to two years in advance. LaForge, CPA, listed 10 steps a buyer can and should take to present a compelling balance sheet that demonstrates the true value of the business. Among the 10 items he included were practical suggestions, including presenting accurate accounts receivable, accounts payable, fixed assets, working capital, inventory management, non-business assets, excess cash and other similar categories. As LaForge outlined adjustments that could be made to the balance sheet, Pietrafisa, the attorney, added that there should also be a detailed review of all books, records and contracts added to the seller’s “to-do” list.

Time matters

Sharfstein said, “You have to run your business as if you’re going to own it forever, but still be prepared to sell it tomorrow.” LaForge added to that insight by saying that time is critical. Analyzing all the metrics is a key first step, but understanding the specific circumstances and industry trends is just as important. The presenters suggested some key questions to ask yourself when anticipating a business sale.

  • Will the owner be ready when opportunity unexpectedly knocks on the door?
  • Is the current owner financially and psychologically ready to sell?
  • Are family members and employees ready?
  • Will employees remain loyal?
  • Will employees sign non-compete clauses?
  • Will key operatives sign non-disclosure clauses?

Scharfstein noted that buyers are usually more interested in a company’s future than its past performance.

What’s behind the hot M&A market?

Even during the COVID-19 pandemic, these experts found that the M&A market is buoyant—more so than ever. Whether you’re looking to identify a strategic buyer to support organic growth, sell to a private equity firm, or sell to a non-US buyer, many deals have been finalized in a virtual environment since 2020, contributing to the fact that the merger field and acquisitions is busier than ever.

Last words of advice

Pietrafisa warned all sellers that “everyone has skeletons in their closet.” Sophisticated shoppers will figure it out, he said. With that in mind, he strongly suggested that sellers address any challenges early to avoid them becoming deal breakers. With the pandemic encouraging earlier sales than might otherwise happen and a younger audience of interested entrepreneurs (with many in their 40s and 50s), the timing is right for many as they look to participate in a robust M&A environment where so many opportunities abound.

LaForge reiterated that even in a strong market, no buyer is interested in a company with a weak balance sheet combined with few strategies to take advantage of a strong economic landscape. So leaders and their management team need to clear their balance sheet before the decision to sell.

Meyer noted that she created a succession plan long before she needed one, but she wanted her employees, vendors, advisors and family members to be ready for any situation.

“Being proactive and prepared for any eventuality is an important part of any exit strategy,” she concluded.

Finally, Scharfstein added that the pandemic has affected some buyers’ decision-making — creating a culture where buyers are stressed, have COVID fatigue and are tired of the challenges that have affected every sector focus. The end result is a greater desire to go out now instead of waiting.

Sally Glick, well known in New Jersey business circles, has become an ROI-NJ Fellow.

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