Friday, January 11, 2008

Determine if it's the right time to sell

South Florida Business Journal

In every business owner's or senior manager's career, one decision will almost certainly be faced: Is it time to take some chips off of the table and sell the business? When making such a decision, Bruce Rector, president of The Rector Group management consultants, says to consider the following:

Succession issues. In a closely held company with an elderly owner, there might be no one to succeed the current management/ownership. If the children or close relatives of a privatecompany's primary shareholder are not interested in being involved in the business, then a salemay be a viable option as a next step.
Driving the company to the next level. By selling to a larger company or competitor, you might be able to bring your company to a revenue and profitability level that it cannot achieve by itself.
Fun factor. The company has grown to the point where it has become burdensome to run on a daily basis - it's no longer fun - and you wish to sell to someone with deeper management bench strength. Alternatively, you might simply be ready to cash out and retire or move on to the next thing.
The large amount of currently available private equity capital. Probably more private equity has been raised and is available for investment now than ever before. Because of the amount of cash chasing deals, and the laws of supply and demand, this drives up valuations in many cases. Remember: In many cases, private equity funds must deploy capital to earn their "carry" fees. This provides a strong incentive for private equity funds to make investments in a timely fashion, subject to fulfilling their fiduciary duties to their investors.
Possible changes to U.S. tax laws. The current capital gains rate is extremely low: 15 percent. One can legitimately wonder whether this rate will remain at that level if there is a change in the political party controlling the White House at the next election. Indeed, some of the Democratic candidates for the White House have stated a strong interest in not extending the current rate into the future; even an increase to 20 percent would obviously have a meaningful impact on the net proceeds to a selling shareholder.