05 августа 2021

Think and Feel. Knowing When it is Time to Sell Your Business

Sergey Airapetov, Partner at the Aspring Capital investment bank and SKOLKOVO Business School’s EMBA for Eurasia graduate, is an expert in M&A deals. Over the last five years, his team has advised on more than 15 agreements in the digital sphere. He told our blog how to know when it is time to sell your business.
Think and Feel. Knowing When it is Time to Sell Your Business
Content source: istockphoto.com

Ambitions, boredom, and struggling with ecosystems

Company owners decide to sell their businesses for different reasons. For example, an entrepreneur’s decision may be driven by the desire for development or the aspiration to create something even more impressive and profitable. Or, in strict financial parlance, receive a greater return on their investment. In this case, the opportunity is not to be missed: once you see a new “ocean”, this is the direction to follow. And even more so that such ideas often come to mind when a market or a company begins to stagnate: competition gets stronger, profit is on the decrease, and growth is stalled.

Another reason is associated with the owner’s role. I know of many examples when the founder felt right about the project while the company was a startup, but lost interest once it turned into a viable business or corporation. At this stage, the reins of power are often transferred to top management, as other managerial skills are required. Entrepreneurs, in their turn, are not delighted to play the role of passive investors—they want to be involved. And there it goes—if you want a “startup spirit”, sell the old and start anew.

Another stimulus to sell a business is ecosystems development, which means they take up ever more competitive space and edge out independent players from the market. The choice is straightforward—you either sell your project to one of those giants now, while it is still unique, or in a few years’ time they will come up with an analogue of their own, and your business will be of no interest to anyone.

Time to sell

Any project has its lifecycle—you just cannot increase the cost of a product forever without changing your business model, especially in the tech. Exponential growth, be it even a 3 to 5-year period, is bound to be followed by a slow-up, and then by stagnation and decline, which is only natural. If you do not want to be thrown off the market, bear in mind that business is about constant change. And if you do not harness that change, you can forget about your company not losing in value. A business should be sold when it has just passed the peak—the project has already shown its maximum indicators and is particularly interesting to the buyers. And if at that moment there is a lucrative offer on the table, note that it will not be there forever.

A company should be sold to those who will help it improve further—just imagine the size of a symbolic Sber’s client base to be covered by your services in the case of a purchase. This is a “win-win-win” deal—you win as the company founder, your business wins as a new life is breathed into it, and your partner wins as it integrates a successful product in its system.

Source: istockphoto.com

Selling your business is not a goal in itself

Once an offer is received, take your time to think it over. Be as honest as possible when considering your business plan and the company’s future and ask yourself: “Can my business be a greater thing and how is it backed by its history?” Any fantasizing has to be thrown away, and you should decide whether you are able to further keep up with the current growth rates and generate the same margins rather than simply hope that they will miraculously double.

An important thing to understand is who else might purchase your company, what their interest might be, how much money this business can buy, and how many current annual returns this deal might bring on.

Emotional aspect cannot be ignored either. Are you passionate about what you are doing, do you see the potential and an opportunity to make money? If you are no longer interested in your business, you are going to struggle trying to build a greater thing on its basis.

Finally, you need to decide what you are going to do when your company is sold. Some owners cannot leave the project simply because they do not know the answer to that question. They are also afraid to lose money—a business seems to be able to bring profit forever unlike a one-time payment, no matter how big it might be.

Accepting and making a deal

Our company prefers to work with those company owners who are adamant about wanting a deal. Previously, we often tried to talk clients into selling their businesses, but then we got it: if a person is not completely sure that it is the right thing to do, there is a big risk the process will be stalled.

Our work is not about talking people into doing something, but about soft power pushing. Thus, in 2014, we helped sell a company whose price was fixed in dollars. The agreement was reached as early as spring, but the deal was finalized in December, when dollar skyrocketed from 32 to 70 roubles. Naturally, the customers were appalled. And then we had to interfere—we asked the sellers to meet the customers halfway and negotiated an accommodating rate of 48 roubles. It turned out to have been the right thing to do—were the deal to fail then, as early as next April it would have fallen apart due to reasons associated with government regulation.

Source: istockphoto.com

Do not lose your uniqueness

Ten years ago, we were trying to sell a company that was among those who pioneered and led the way in online acquiring. The demand was there, but the sellers wanted to get more money and were holding off on the deal. In a few years’ time, the company’s price fell approximately twofold. A few more years passed, and its cost was next to nothing, as all the major banks, such as Sber, Tinkoff, and Alfa-Bank, got hold of its knowhow and client bases. The product lost its uniqueness and became a generic, with its value almost completely gone.

I do not have a universal recipe that will help you understand when it really is time to sell your business. But the very possibility of doing so is always linked to the value that you represent for the market. Financial indicators are no more than a consequence, and they can remain solid for some time. But if you stop giving value to the market, you must either change or prepare to leave.

* The Aspring Capital investment bank is one of the most active advisers on M&A deals in Russia’s mid-cap segment. Since 2014, the company has helped finalize more than 20 deals with a total value of over $800 million. A greater share of those agreements falls within the digital sphere followed by pharmaceutics and medicine, as well as consumer sector.


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