The decision to sell a business can be difficult, complex, and involve many factors. It is further complicated when the industry in which the business operates has undergone significant challenges.
Due to continued revenue and profitability challenges in the media industry, companies looking to sell have faced declining valuations and lower multiples, leading owners and stakeholders to consider the future of their enterprises. Multiples are driven by a number of factors such as cash flow streams, industry and market conditions, management talent, and geographic location. The significant challenges the industry has endured, due in large part to the digital age, have resulted in a higher level of uncertainty of business performance, which creates a higher level of risk. This results in lower multiples that buyers are willing to pay.
Regardless of how a business is performing and its industry conditions, all owners and stakeholders need to go through a process of analyzing whether selling their business is the right decision. This process should include evaluating whether the business is ready to be sold, and whether the owner is ready to sell – both financially and emotionally. When the industry is under duress, this process becomes more complex.
Since owners of certain media industry businesses may not be in a position of strength, the offers received may be lower than expected. In part, this may be because the buyer senses the seller either wants or needs to exit the industry in a hurry.
Owners should pause to reevaluate when they receive an offer for their business which is below expectations. This process should include an assessment of:
- The company’s free cash flow, operations, and balance sheet. This step would have initially been completed when the business was put up for sale, but an analysis of the cash flow at the multiples used by the prospective buyer is important. It may reveal that it is not a good time to sell because the cash flows that the business can generate in a short time period (two to three years) may be equal to or greater than the buyer’s offer.
- Capital expenditure needs. A company that will require significant amounts of cash to invest in new equipment or to repair existing equipment in the next three to seven years needs to factor this into their decision-making process about whether to sell. Certain media companies are highly capital intensive, which could drain valuable resources. A business should also take this opportunity to review outsourcing options as a way to reduce costs.
- Existing markets and diversification strategies. While management has usually assessed these areas in the past, it needs to be a continuous process. A review of both existing and new markets and products is key to determining the viability of the company and whether the cash flows are adequate to sustain the company into the future.
- The management team. Owners need to evaluate whether they have the right individuals with the right skill sets to lead the implementation of strategies that will help the business maintain its position and diversify into new markets or product lines.
Selling a business is stressful and can be complicated by family dynamics, transition issues, financial considerations, the industry, and other factors. Receiving an offer that is below expectations can add to that stress. However, market conditions may dictate that the owners step back and re-evaluate their current financial condition and determine whether it is more feasible to delay the sale until the market improves.
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