Blog

“The Crossroads”: to Sell or to Stay and Grow

By Mark Miller, Founder and Managing Partner, GHP

GHP has worked with over one hundred C-Level leaders and Boards and, while the  size, capitalization, stage, objectives, needs, and timelines differ, the vast majority of our clients come to GHP when they have reached “The Crossroads.”

There are three main reasons that CEOs and founders find themselves at “The Crossroads.”

  1. They have met with or been contacted by what appears to be a potential buyer.
  2. Their Board or investors are pushing them to test the market or to sell.
  3. They have a runway of 12-18 months or less from being out of cash.

No matter which road our clients took to “The Crossroads,” the choice to continue growing their company or consider a sale is a difficult and often emotional one. We understand this dilemma, having been in this situation ourselves as operators who sold companies we founded or came in to lead.

Let’s pull apart the three roads that lead to “The Crossroads” one-by-one ….

Met with or contacted by what appears to be a potential buyer

Questions to consider:

  • Is it a benefit or a distraction to engage in incoming inquiries from strategic companies, PE firms, or VCs who want to to learn about your business?
  • Do you understand what is really behind the questions they are asking?
  • Are the parties who are reaching out to you serious, or are looking to learn?
  • Are the parties the right potential buyers?
  • Is there a better fit to acquire your company and achieve your goals and dreams?

When CEOs or C-suite for companies are approached by what may be a potential buyer, they need to thoughtfully assess whether a successful exit is indeed in their near future. Often unexpected outreach from potential buyer is in fact not related to an acquisition, so it is important not to make assumptions.

The team should approach the initial meetings with little anticipation of the end game, but with a good deal of preparation. A thoughtfully developed presentation that delivers the company’s backstory and narrative is essential, and the team should spend adequate time to test and tweak the presentation to best position the company’s strategic value.

If this outreach from a potential buyer”make the CEO and executive team think about selling, then it is time to think about what an ideal buyer and outcome would look like.

Facing pressure to sell from your board or investors

What if the issue of selling a company is more urgent than the previous scenario? Many times, we have dealt with companies where the board and/or investors are unwilling or unable to put in more money. In this case, the CEO will need to raise outside capital or sell.

Questions to consider:

  • Is this the right time to consider or to commit to an exit?
  • Am I ready, and is my company ready?
  • Is this the best outcome for my shareholders, my team, my family and myself?
  • Are we maximizing our economic value and our mission, or would another entity be better suited to achieve these outcomes?
  • What will the buyer expect from me post-transaction? Is that aligned to my goals?
  • Do I get additional benefits from staying on post-transaction?

It’s tough when the CEO and company are under scrutiny and getting pushed towards an exit. At this point, the CEO needs to be realistic and also realize that they are probably stressed. At this time, it is difficult to be clear-headed.

On the flip side, it is imperative the CEO is well informed, practical, and best able to play the hand they have been dealt. Brian Hamilton wrote a good article on this topic. He explains that timing might be right for an exit if:

  • The company reached a milestone, and the work is no longer enjoyable;
  • The CEO has hit their management threshold, and the organization needs new leadership to scale further.
  • There may be an imminent market threat that could eat into or destroy what has been built.
  • There may be a lucrative offer on the horizon that you should not risk missing.

It takes vision and an uncluttered mind to see and adapt to this playing field, while under stress.

Facing the realities of insufficient runway

What if the  company is at risk of running out of money? That leads us to the final scenario of a short and diminishing runway, where the company may run out of cash within 12 months and needs an alternative or exit plan.

Questions to consider:

  • What is my runway, and how can I extend it?
  • What are the benefits of running the business longer versus considering a sale now, and what are the risks?
  • Do I have the option to wait and see what happens if I do not reach my proposed  milestones?
  • What do I think is the market value of my business, and how quickly can I validate that value?
  • How do I unlock strategic valuation in a sale?
  • Does it make sense to merge/roll-up to achieve greater scale and get higher multiples in a sale?

Geoff Woods wrote a good piece on this topic a number of years back, but it still resonates. The key point is for entrepreneurs to be honest with themselves about the issue at hand, what brought them there, what their options, and what the implications are of each pathway.

You are not alone. This is where GHP comes in, ready to be at your side with 50 IQ points of perspective and depth of experience and relationships to get to the best outcome.

How GHP can help:

  • With decades of experience as operators and as M&A advisors in the education and workforce industries, GHP has both deep market knowledge and a network to match.
  • GHP’s core business is to advise entrepreneurs who should be or are in the process of considering whether to sell or keep growing their companies. We are uniquely poised to create the best optionality and flexibility for you, and give you the rationale to make the best decision.
  • It is best for clients to get us involved early to bring us under the tent and positioned to help as much as possible.
  • If a potential buyer has approached you, we’ll help you get your corporate house in order and create a quiet outreach to establish a competitive process that unlocks the highest value and best outcomes.
  • If you decide to keep growing your company, we work with you to accelerate growth and build value, positioning you for a successful exit in the future.

In case studies and blog posts that we will be publishing shortly, we’ll share how some of our top clients have opted to sell their companies when they are at The Crossroads. We’ll also share how some of our clients decided to keep growing them. If you need help executing a sale or think you will soon, or want a sophisticated corporate development team alongside you, please reach out to me through email or on LinkedIn. We’d be happy to connect with you for a free consultation.

Cheers,
Mark

Founder and Managing Partner of Good Harbor Partners