Making a deal work in today’s business environment
Anyone looking to buy or sell a business in Canada right now is facing their fair share of challenges, but if you’re looking to buy or sell in Alberta you’re likely having a particularly hard go of it. The province’s challenging economy, coupled with its growing number of retiring baby boomers, has resulted in an increasing divergence between buyers and sellers. So how do you get a deal done in the current environment?
There are three key areas to focus on that are critical to the success of a transaction in today’s market.
The value of the business. There is an increased level of scrutiny from both buyers and sellers around the valuation of a business. Buyers don’t want to overpay and sellers don’t want to be low-balled. The current business market is changing rapidly. As a result, a sound understanding of the future potential of the business is required. A valuation is based on the future potential of a business. Relying only on historical results could result in a skewed view of the company’s valuation and lead to a failed, or unfair, deal.
Terms. Terms are also a critical factor in getting a deal done or losing one. A common situation is where the seller has an asking price but the buyer isn’t willing to pay all cash. Instead, they offer a partial cash payment along with a contingent payment, which is tied to the future performance of the business. Whether this works is completely dependent on the situation and whether both parties feel comfortable with the proposed deal. Either way, without properly structured terms, the chances of a successful transaction are reduced.
Consider all your options. As a seller, it’s important to consider all eligible buyers. For example, management may be the best fit to buy your company, but may not have the sophistication to run the business or the capital to purchase it. Don’t discount them as a buyer because of this. There are ways to make a situation like this work for both parties. Alternatively, there may be other parties, such as a competitor or supplier, who could also be a good fit. Depending on the complexity of the situation, it may make sense to speak to a specialist that is familiar with mergers and acquisitions to ensure you’ve identified all your options.
In today’s business climate, it can be difficult to determine whether now is really the right time to buy or sell a business. By doing your due diligence and closely examining these three key areas, however, the decision will hopefully become a little clearer.