Timing is everything they say, and watching a businesses value change wildly in a short period of time can either be an opportunity or crushing to a seller or buyer. Most often I see the latter, a seller who holds on too long to lose a majority of their market value, or worse, become unable to run the business and lose everything.
Two cases that make me lose sleep.
A large manufacturer of metal products receives a 5.5 million dollar all cash offer. The family also owns the real estate and eventually cannot come to terms on the lease rate. They wind up passing on the offer due to the lease stalemate. Shortly thereafter, the economic forces and resulting demand changes for this product. The company loses revenues and most of its profits. Meanwhile the family has issues that continue till today, but the company is now not saleable at an acceptable price. Since then they have stated they were mad at me since I didn’t push them harder to take the deal at the time.
An educational software company is offered 12 million all cash. They refuse to even counter the offer as they want 10x’s projected profits. The company loses its search engine optimization edge and online sales plummet by 40%. The company is currently trying to stay alive though layoffs and other cost cutting measures. They asked if we could get them 2 million now, the answer is unfortunately a resounding no.
Two cases that were winners for the seller or buyer
An aging couple in a manufacturing company in which the industry business is mostly going overseas. The year is 2006 and they also own the real estate. They have excess capacity and the real estate outweighs the business value greatly. We find a strategic buyer who needs more manufacturing capacity who buys the whole deal. Shortly thereafter the real estate market crashes. The sellers also struggle with health issues post closing. Both the market crash and health issues would have wiped out any value the company/real estate had.
A young entrepreneur buys a sleepy small security badge supply company. Company has four employees in an old warehouse in a depressed part of town. Buyer performs due diligence and although the company has questionable books, decides to move forward. The closing date is set, September 10, 2001. Obviously the company grows exponentially after the closing.
Bottom line is that it is impossible to exactly time the market. Sellers and buyers must understand that there is risk in hesitating or passing on an opportunity to sell or buy. My advice to entrepreneurs is to be careful to pass on an opportunity, as it may cost you dearly!
Andy Cagnetta owns and operates Transworld Business Advisors. He joined the company as a sales associate and later purchased it. Transworld is an international franchise business and franchise brokerage, with thousands of businesses for sale and franchisees in the United States and Internationally.