It’s possible to plan the sale of the company (or part of it) to maximize the return on
investment, taking advantage of opportunities or looking for partners that contribute
with know-how, technology, management tools and working capital.

By Eugenio Micheletti* for staffingamericalatina

In Company-acquisition operations we may distinguish between cases where sellers have gone through situations that force them to sell, and cases where sellers have planned a deal.
From a financial perspective, we know that it is more convenient to sell when the company generates the highest cash flows (free cash flows). It is in such moments when any of the most frequently used valuation method will determine a higher fair value, especially in comparison to moments when earnings and cash flows are lower.
Hence, as common sense suggests, it is always better to sell when the Company may decide to do it and seize opportunities that come along with it, than selling when, for a certain cause, the company is compelled to search for buyers.
At the mercy of circumstances
In our experience as M&A advisors, we have found that some most frequent reasons that lead to non-planned sales are the following:
1- Problems between owners that could not be effectively solved. In this category are mainly included family business problems, such as: problems between different generations; succession of entrepreneurs; and, obviously, separations or divorces.
2- Entrepreneur could not educate successors, or these are still too young and there is not much time to complete their training.
3- Competitors are better and they have gained market share to the Company.
4- Change of regulation reduces profit margins or makes the business non-viable.
5- Technology innovations force the Company to change key processes and/or require huge investment that company does not have.
6- Difficulties in managing finance, commercial or operation issues.
All these issues have something in common: lack of planning and/or poor management.
Even in those cases where regulation is changed, there are tools that enable companies to
foresee changes and adapt to new market conditions.

Looking for good opportunities…
We could mention many cases where the alternative to sell either a part or the whole company is thoroughly analyzed. Different scenarios are compared and the key aspect of the M&A process are planned. This allows the company not only to seize opportunities from potential investors, but also to promote and look for such
opportunities, presenting the company as an attractive alternative.
Among most frequent cases of prepared sale, we could mention:
1- Time to harvest the sowing: it is fair that entrepreneurs, after years of dedication and development, recall their company value, or part of it (maintaining executive functions if they want). For family businesses it is an attractive option to maintain shares, allowing young generations to achieve executive functions.
2- Risk diversification: when finance perspective prevails, it is convenient to diversify portfolio, selling part of the Company and investing in other assets.
3- Growth plans require additional capital, which could come from strategic partners.
4- When global companies do not have operations in one market or region, it might be interesting to acquire a local company or part of it. In these cases the local owners receive genuine capital, new management, financial and technologic tools, global brand support and international revenues.

Always be prepared:
In any case, the company must be properly prepared for an acquisition process. Such preparation shall include personal, financial, operational, business’s risk and contractual issues for those who remain developing activities in the company. We will further explains these aspects in future notes.
The board of directors is responsible for analyzing the alternative of selling the Company (either in a 100% or less), as part of the medium and long term planning process. By doing so, alternatives will be generated in those moments when the company has better earnings and cash flows, increasing the return for the shareholders.

*Eugenio Micheletti is Director of Emerging Staffing Brokers
emicheletti@emergingsb.com