Time in the Market > Timing the Market
Instead of trying to time the market, focus on your business’s performance. A strong business will always be attractive to investors, regardless of the broader economic climate. Waiting for the “perfect” market can delay your plans for years.
Market timing is impossible and distracts from your goals. Don’t wait for the perfect market; a high-quality business will command a high-quality valuation.
An exceptional business will find an investor in any market. Quality businesses with growing revenue and EBITDA are always in demand.
Waiting for the “right time” can unnecessarily delay investment or owner plans. Focus on what’s best for your business and personal goals, not on unpredictable market cycles.
Value Boosters
Here are a Few Things you Can Focus on to Increase Likelihood of a High Valuation in any Market
Financial Infrastructure: make sure your books are clean and clear. Having messy or incomplete books can complicate a process and delay closing.
Customer Concentration: having a diversified customer base will help protect the company’s market share and earnings in down times or during market shocks. A diversified customer base is a highly valuable asset.
Leadership: make sure your management team knows the business and can carry the load while the process is ongoing. If you plan to take a step back post-transaction, make sure you have a right-hand person who can step into the leadership role and scale the company with the new growth partner or acquirer.
Revenue Sustainability: having long customer tenure, recurring or repeat revenue, future revenue visibility, and solid pipeline & growth prospects, will all help increase value, especially in a generally down market.
The Second Bite is Real
Keeping an equity stake after a sale or investment can be a powerful way to increase your lifetime return. By partnering with an investor who brings capital, resources, and sophisticated systems, you can grow your remaining equity much more effectively.
Retaining equity and selling at the next liquidity event can be more lucrative than the initial transaction. Partnering with a new firm that offers resources, capital, and connections can significantly increase your lifetime proceeds.
New partners bring resources that accelerate growth. They can provide things like a consolidated back office, human capital, advanced systems, and capital, all of which contribute to the value of your remaining equity.
Using easy numbers as a fictional example, a company doing $1 million in EBITDA may sell for $5 to $10M total valuation. After an acquirer has grown the company up past $10 million of EBITDA, it is not a 5-10x multiple on EBITDA. It is more likely 12-15x multiple. This is how your equity multiplies even if you are holding a minority equity share.
Partnering greatly reduces personal risk. You can grow your equity without the burden of personal guarantees.
Investing Principles Echoed in M&A
Just like legendary investors, business owners may want to focus on finding the right partners for their company, not on market timing. The value a growth partner adds to your business can outweigh any potential gains from waiting for a market upswing.
Focusing on finding great partners, adopting a mindset like great investors who prioritize finding high-quality companies over attempting to time the market can make all the difference in the end.
Partnering can compound and add more value than waiting if it is the right partner. A strategic partner’s prowess and resources can absolutely have a much greater impact than trying to guess the future.