Business Advice

Knowing The Motivations Behind Your Exit Strategy

September 5, 2019 By John Binkley

The M&A process is only half the story when guiding a client to exit. This is one of the great lessons Dr. John Binkley’s decades at Generational Equity has taught him. What often goes underappreciated is the emotional aspect of an exit strategy.

What does Dr. Binkley mean by this? Well, when you dedicate years to nurturing your business, especially if you started from the ground up or it has been in your family for generations, making the decision to exit can be incredibly difficult.

The timing might be perfect, the offer could be ideal, the buyer the right fit… but you still find yourself not ready to let go.

Dr. Binkley’s son Ryan explored the emotional journey to selling a business in a recent article on LinkedIn, which covers this experience in greater depth. With many years working in the M&A industry behind them, they’re familiar with phrases from business owners such as:

“I’m just not ready to exit.”
“I will miss my employees.”
“I have no hobbies or interests outside of the business.”
“I am worried about the legacy I am leaving behind.”
“No one can run the business as well as I do.”
“What am I going to do when I leave?”

The final statement has been highlighted as it leads to the subject of this piece: knowing your motivation behind your exit strategy.

Understanding Your Incentive to Exit Your Business

Most people exit their business with a motivation in mind, whether it’s an offer too good to refuse, they’ve taken their company as far as it will go, or they’re ready to retire and take back time for themselves.

However, that motivation to exit can easily find itself buried under the emotions that can hinder any sale – the doubt, the grief, the fear. In Dr. Binkley’s experience, losing sight of this reasoning can make it more likely for sales to fall apart at the 11^th hour and you potentially walk away from an optimal deal.

What is the consequence of this? Not only do you lose out on the time and resources you’ve devoted to valuing your company, sourcing a buyer and negotiating this deal, but it can also lead to greater issues later on, including:

A host of confidentiality issues between you and the other party, which may lead to legal difficulties
Issues forming between your loved ones, employees and partners over the uncertainty surrounding your business
You develop a negative reputation among potential buyers, who will be more apprehensive about entering negotiations with you when you next decide to exit, likely hurting the value you receive

Furthermore, holding off on exiting because you are unclear regarding your personal motivations means you may one day find yourself forced to sell. Dr. Binkley often says there are two types of business owners:

Those that PLAN to sell
Those that HAVE to sell

It is far more beneficial to find yourself in the former group than the latter. So it is essential to make sure you’re mentally ready to exit early in your journey to keep you on course for a well-planned, successful outcome.

What is Your Reason to Sell?

As alluded to earlier, there are a host of reasons why you might be motivated to exit your business. But how do you find yours? Obviously, the answer to that can only come from you and your inner circle, but addressing this should take time and plenty of thought.

A decision of this magnitude should not be taken lightly, especially if you hope to achieve the optimal exit strategy. Rash decisions are the ones most likely to be reconsidered down the road, so it should take a lot of rationalizing and deliberation both internally and with those closest to you, be it your family, other shareholders or trusted advisors.

Indeed, talking to an experienced M&A advisor can be a huge help in reinforcing your motivations to exit. At Generational Equity, Dr. John Binkley places a strong emphasis on dealmakers getting to know their clients closely, understanding their background, needs and ambitions before proceeding any further in the process.

This focus has helped many of Generational’s clients understand their incentive to exit their business in pursuit of the maximum value. No two clients’ goals are exactly the same, which is why it’s crucial to work with an M&A professional that treats you as an individual, rather than taking a cookie-cutter, one-size-fits-all approach.

If finding and sticking to your motivations to exit are proving difficult, Dr. Binkley would like to share some of these clients’ stories, helping you understand:

How diverse reasons for exiting a business can be; and
How working with a professional keeps those motivations top of the agenda throughout the journey to exit.

Security for the Future – Mike Aman

*“I would have been doing my wife and my children a disservice had I not had a plan in place for when the time came for me to sell the business.”*

We can’t predict the future. For Mike Aman, it took a wake-up call to fully appreciate this when a close friend suffered an unexpected stroke. Mike used this as motivation to talk to his family and reach the conclusion that selling his business in order to secure their financial future, so they were ready for any eventuality.

Freedom to Explore – Bobby & Stacy Evans

*“My wife and I love to travel, and we’ve got the time available to us now to be able to do more travelling than we have in the past.”*

Being tied to their company restricted the time Bobby and Stacy Evans had to travel and experience different cultures. This vision was a big motivator for them in their exit strategy, giving them the time, resources and freedom to spread their wings and journey around the world.

Explore Your Passions – Tommy Barker

*“I learned in business that time is money. I’ve changed this in the time since I’ve sold my company – right now time is more valuable than money.”*

When you’re a serious business owner, your other passions often take a backseat. When the time was right, Tommy Barker decided he was ready to dedicate more time to his love of restoring classic muscle cars. This motivation carried him through the process, keeping him on the road to his optimal exit.

Partner for Growth – Debbie Ritchey

*“You’ve really got to ask yourself do I want to just get out, or do I want somebody that has the capital that I don’t to grow this thing?”*

Sometimes exiting the business outright isn’t the motivation, but instead selling part of it to a partner to help it continue to grow. That was the case for Debbie Ritchey, who sought out an investor to support her company’s development, with the goal of reaching its full potential.

Enjoy Retirement – Michael & Rebecca Baker

*“We wanted to get out while we could still walk and still enjoy, have time to play with the kids and not have to worry about things*.”

Often, the goal of an exit strategy is to reap the rewards following years of hard work and perseverance. Having taken their company as far as they could, Michael and Rebecca Baker’s motivation changed to selling for the maximum value, giving them the freedom to enjoy life on their terms.

Finding Your Motivation to Exit

Dr. Binkley hopes this dive into the importance of keeping your motivations for exiting in the forefront of your mind has proved useful, as well as the stories of real business owners’ exit journeys. The psychological side of selling a business is in many ways just as important as the steps to achieving a deal, so it is important to take this into consideration.

Again, how your M&A advisor approaches the emotional aspect of the exit planning process should be a key consideration in who you work with. Make sure you choose an individual or team that prioritizes your goals as much as you do, helping these stay fresh in your thoughts during the difficult moments along the way to your exit.

You can discover more about both the psychological and practical aspects of exiting a business in many of Generational Equity’s in-depth insights. Alternatively, explore Dr. John Binkley’s blog for more articles on M&A, business, ministry, and more.

Ready for Tomorrow – 5 Ways to Future-Proof Your Business

June 11, 2019 By John Binkley

For Dr. John Binkley and the team at Generational Equity, preparing clients for the future is at the heart of what they do every day.

Whether its introducing techniques to enhance a company’s value, minimizing risk in the eyes of potential buyers, or helping an owner create a comprehensive exit strategy geared to achieving the maximum value when they depart, Generational’s M&A professionals are dedicated to giving clients the future they deserve.

Unfortunately, the future is now arriving faster than ever. Factors such as increased globalization, the rapid development of technology and an increasingly competitive business landscape means that the world we see today could look completely different tomorrow. And, for business owners who are too focused on the present day, there is a real risk that they’re missing out on a brighter future.

Consider this for a moment: in 1965 the average tenure of a company on the S&P 500 was 33 years. By 1990, this had dropped to 20 years and, if forecasts are correct, by 2026 it will be down to 14 years.

For Dr. Binkley, this significant shrink in company lifespan illustrates how important it is for business owners to place a priority on future-proofing their business and preparing for life beyond it. This is not something that can be placed on the back-burner while you worry about day-to-day operations – without a plan for tomorrow, your business might not have one.

Future-proofing your company not only helps to ensure its survival in an increasingly competitive business landscape, but it also plays a big role in convincing potential buyers and investors that your organization will be around for years to come. If your company isn’t set up to embrace the future, your chances of securing an optimal sale diminish greatly.

Here, Dr. John Binkley breaks down five ways you can help secure the future of your business in pursuit of your goals, from establishing your ambitions early to securing its legacy with a thorough succession plan.

1 – Establish Your End Game

First and foremost, ask yourself an important question:

“What does success look like to me?”

This is something Dr. Binkley recommends you ask whether you’re just starting out, or have been at the helm of your company for decades. Knowing your ambition for your company and for life after business is vital when deciding what direction to take both now and in the future.

Maybe it’s to be the top player in your industry? Perhaps you want to make a difference in the world? Or you could simply want to earn enough to retire comfortably and look after your loved ones?

Whatever your goal, write it down and reflect on it regularly. Your aspirations could change over time, so it’s essential to keep this up-to-date. Keeping your aims fresh adds clarity to your future and ensures the decisions you make to progress and develop your company are proactive, not reactive. This means you’re thinking clearly about how to tackle tomorrow in the best way in order to achieve your ambitions.

2 – Invest in Your Employees

When we hire new staff, we tend to do so to address a present need in the business. However, those who are focused on future-proofing their company will concern themselves with what their business will need tomorrow.

To keep up with changing demands in your industry and among your customer base, it’s crucial to invest in your employees’ development with training opportunities. This helps your business grow into new markets, enhances its repertoire and makes it a much more valuable proposition to buyers when the time comes to exit.

In addition, this investment shows your staff that you care about their future, as well as the future of your firm. This motivates them to work harder for your cause and helps develop a sense of unity and shared purpose. Let’s face it – without a happy, fulfilled workforce you can rely on, your business won’t have much of a future to look forward to.

If you’d like to learn more about ways to encourage employees to support the future of your organization, Dr. Binkley recommends reading the “5 Ways to Put Your People First” insight on Generational Equity’s website.

3 – Keep Up with Technology

A quote Dr. John Binkley likes to refer to in this situation is by the Danish physicist Niels Bohr:

“Technology has advanced more in the last thirty years than in the previous two thousand. The exponential increase in advancement will only continue.”

Remember that Bohr passed away in 1962. Technology has since developed at an even faster pace, to the point the world is almost unrecognizable to that of 1962. Keeping up with the latest technology is crucial to a business staying relevant and efficient, so it doesn’t fall behind competitors.

Of course, this investment in developing technology in-house can be extremely costly and time-consuming for companies. As a result, Dr. Binkley has noted a trend towards M&A activity with the goal of incorporating new technology and expertise, rather than investing in R&D, particularly as part of cross-sector M&A activity.

This helps companies address the need to keep up with technology demands in an effective way, as well as increase the appeal and value of middle market firms that have been more agile in adopting this technology.

4 – Avoid Dependencies

Next, it is crucial that a company looking towards the future embraces diversity and doesn’t place all its eggs in one basket.

Dr. Binkley and Generational Equity’s staff have previously spoken about how any business that is too dependent on a single customer, supplier or partner waves a massive red flag to prospective buyers. This is because it indicates that the company’s success is reliant on not only their own hard work and initiative, but maintaining a consistent relationship with a third-party.

As a rule of thumb, if a potential buyer would be worried about your organization’s future, it’s a good sign that you should be too. To avoid this, it’s important to devote energy to diversifying your customer and supplier bases, as well as your offering over time.

This enhances your company’s chances of survival and means when the time comes to secure an exit, a buyer will feel more confident that if a revenue stream is lost post-transaction, your business will continue to grow.

5 – Start Your Succession Plan

Finally – and arguably most crucially of all – create your succession plan as early as possible. Last year, an article in USA Today revealed that 58% of small business owners didn’t have a written succession plan, even though 60% of the 15 million privately held businesses in the United States are owned by people born before 1964.

This is a staggering statistic. Having a succession plan in place is vital to your company’s long-term viability, as well as the legacy you leave behind when you depart. Far too many fall into the assumption that the business will be taken over by a family member, or they’ll be bought out by one of their key employees. Both options carry substantial risks:

What if the family member you’ve earmarked is not passionate about your industry, or has ambitions outside of your company?
Are you sure your offspring/employees have the characteristics required to be an effective owner?
Will other employees resent the person you handpick to take over the reins, especially if they’re part of your family?
How will your key employees finance the acquisition, and will this be enough to support your life after business?

Considering these questions is not something you can afford to leave to the last minute. Plus, in Dr. Binkley’s experience as Chairman of Generational Equity, the most lucrative and trustworthy end goal for a succession plan is to negotiate with interested buyers.

By building your succession plan around your ideal buyer, you establish the key characteristics required to drive your company forward after you depart, greatly increasing your chances of locating a buyer that is willing to present an optimal offer.

The Future Is Now

Dr. Binkley hopes that this has demonstrated the importance of future-proofing your business in today’s landscape, while giving you an understanding of some of the core ways you can accomplish this.

Given the day-to-day responsibilities of owning and managing a company, it’s all too easy to let the demands of today overtake your needs for tomorrow.

Devoting time to plan and strategize for the future of your business not only helps to preserve it for years to come and craft the legacy you wish to leave behind, but also makes your company a more attractive proposition to buyers when you are ready to exit.

If you’d like to learn more about steps to future-proof your business or the process of building a buyer-ready business, Generational Equity’s regularly-updated, in-depth M&A insights provide a wealth of information on preparing for the future you’ve always hoped for.

In addition, Dr. John Binkley’s blog has several articles across the M&A spectrum, as well as other inspiring and motivational pieces.

How Can Your Business Capitalize on Record-Breaking Private Equity Activity?

May 25, 2018 By John Binkley

When determining your exit strategy or looking to attract investment into your company, it is important to remain open-minded with regards to who classifies as an “optimal buyer.”

Something Dr. John Binkley has identified among business owners in his time with Generational Equity and in the wider M&A market is the presumption that their eventual buyer will be someone from within their own industry (and likely a competitor), and it will be a straightforward 100% sale.

For some, this will be how their exit process pans out. But, there are alternatives. This piece is focusing on one of those options that can prove to be a win-win for all parties involved in a transaction – investment from a private equity firm.

Why highlight this now? Well, as Dr. Binkley has previously emphasized, we are in the middle of one of the strongest seller’s markets in recent history. But, beyond this, many are projecting that private equity activity in 2018, particularly in the middle market, may set new records after an already stellar 2017.

In this article, Dr. Binkley will outline what a private equity firm is and how a partnership with one can benefit business owners, explore the recent growth in private equity activity, and explain what business owners considering a partial or full exit of their business can do to market to these firms.

What is a Private Equity Firm & how do they operate?

“Private equity is capital that is not listed on a public exchange. Private equity is composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity.” – Investopedia

In practice, a private equity firm seeks to enhance the value of a ‘platform company’ (or portfolio company), which they will then exit at a later date for a greater valuation. In order to do this, they will often earmark smaller add-on companies to support the growth of their larger investment.

These smaller companies are usually strong synergistic fits for the platform company, giving it access to improved technology, additional capital, access to new markets and more skilled staff, among other benefits.

This continued investment into the platform company will often be carried out over a number of years in pursuit of an optimal return, both for the private equity firm and the original owners of the business, who often stay on during this process due to their expertise and understanding of the company’s culture and industry.

In Dr. John Binkley’s experiences as part of Generational Equity, these private equity firm transactions are most often established through a partial sale. In these scenarios, the equity firm acquires 51% or more of the target company, existing management is retained, and the firm continues to invest into the growth of the company over time.

What are the benefits of working with a Private Equity Firm?

As a result, partnering with a private equity firm through a partial sale presents significant benefits for business owners who have reached their ceiling in terms of building their company’s value, or aren’t looking for a complete exit from their business. With investment from a private equity firm, a company might experience:

Greater investment of capital into areas of their company
Expansion of their operations
Increased brand awareness in new or existing markets
Implementation of more efficient processes
Introduction of new staff/management
Institution of improved technology and equipment
Enhanced marketing and sales acumen

An example of this in action can be seen in the sale of Tate’s Bake Shop to Mondelez International for $500 million. Tate’s Bake Shop was previously a portfolio company of Riverside Company, a private equity firm specializing in the lower middle market.

Thanks to the guidance, support and funding provided by Riverside, Tate’s was able to grow beyond its pre-existing means at an exceptional rate to achieve this valuation upon their sale. For the owners of the company, this meant they were able to pursue further growth with the help of like-minded individuals and receive a return on investment upon their exit they would likely not have achieved otherwise.

Is now an ideal time to consider Private Equity Investment?

Having a firm grasp on what private equity firms do and the benefits it can have for your business, whether you’re planning on selling the business or investing in its future growth, is invaluable in the current market.

As Dr. Binkley mentioned earlier, we could be on the road to a record-breaking year for private equity activity. According to PitchBook’s recent US Middle Market PE Report, $54 billion was invested in middle market private equity activity in Q1 2018, continuing the pattern set in 2017’s record-setting year for both acquisition value and volume of transactions completed.

Almost $55 billion worth of capital was realized in 2017 upon exit, a 55% increase on the previous year and only slightly short of the 2015 peak. However, it should be noted that 2017 represented a consistently strong seller’s market that was not skewed by one great quarter or a couple of standout transactions – both Q2 and Q4 were worth over $15 billion.

In addition, add-ons now represent more than half of all buyout activity, a much higher percentage than even a few years ago, while nearly 30% of companies backed by a private equity firm undertake at least one add-on acquisition per year. Furthermore, with the baby boomer retirement wave expected over the next decade (10,000 baby boomer business owners already retire every day), now is considered an ideal time to pursue investment before the market becomes crowded.

Why the interest in lower middle market companies? The numbers don’t lie – there are 350,000 companies with an annual revenue between $5 million and $100 million, compared to just 25,000 between $100 million and $500 million. So, with private equity firms sitting on a record amount of dry powder ready to be invested, they will look to the largest volume of companies to devote their time and money to, which also have lower risk associated with them.

It is easier for private equity firms to score runs with several one- or two-base hits than it is to score with a single swing that has the intention of hitting a home run.

How can I take advantage of increased Private Equity Activity?

With demand high for middle market businesses among private equity firms, the best advice Dr. John Binkley can offer is don’t delay in marketing your company to these groups. As previously mentioned, the market is set to become crowded over the next decade due to the retirement of baby boomer business owners, while at present private equity firms are urgently searching for new investment opportunities.

Whether your business is chosen as a potential platform company for a private equity firm, or identified as an effective add-on for a pre-existing portfolio company, there are plentiful opportunities to achieve an optimal value. With effective collaboration and investment, all sides stand to benefit and generate more revenue in the long-term.

It is encouraged to reach out to an M&A advisory firm like Generational Equity for further guidance, and to ensure you locate private equity firms that align with your own business goals. Realizing the potential private equity investment can have on your business is often predicated on a strong partnership and shared culture between all parties. So, getting professional support in assessing your options is essential in making the most out of a relationship with equity firms.

If you’d like to learn more about private equity and how it could play a key role in both the future growth of your business and eventual exit strategy, you should browse Generational Equity’s in-depth M&A insights. Their website contains numerous valuable resources on the topics of private equity, add-on acquisitions and exiting for the optimal value.

For more from Dr. John Binkley, be sure to visit his blog for further exit planning advice, management tips and recent updates from his activities.