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M&A Reasons to Sell: Let Someone Else Take It to the Next Level

The M&A market is full of owners who choose to sell because they’ve determined that they’ve taken the business as far as they can take it. They may not want to retire, but they also may not want to run the same company anymore. This situation happens for a few reasons:

  • Capital needs: A growing company, even a highly profitable company, usually requires more capital than the business generates from operating cash flow. Why is that? For most companies, cash flow lags behind revenue recognition, and revenue recognition lags behind expenditures required to support that revenue.

    A growth company that constantly needs to reinvest in the business (new employees, equipment and supplies, and so on) essentially has the capital needs of a much larger enterprise. Owners often decide they’re no longer willing to put their money at risk, and as such, they’re ready for another owner, perhaps a larger and better-capitalized entity, to swoop in and take the company to the next level.

  • The segue: The segue refers to a natural phase during the life cycle of a company: the gradual shift from an entrepreneurial company to professional company.

    As a company grows, it needs more people to manage, oversee, and support the company’s new, larger size. With each new hire, the dynamic of the company changes; the entrepreneur/owner’s influence on the corporate culture is diminished. This move isn’t a bad thing; it’s normal. The company, by necessity, has to shift from a centralized, seat-of-the-pants, CEO-is-in-on-every-decision organism into a diverse, decentralized, and highly structured entity.

    Many successful entrepreneurs simply don’t have the ability (or interest) to design, implement, and run a highly structured company and thus begin to pine for the days of yore. At this point, bringing in a larger, professionally run entity may be the best way for the company to continue its upward growth.

  • Chairman of the bored: The major battles are won, the company is on a great footing, and everyone knows his job and does it well. So where’s the problem? Believe it or not, many business owners, especially those of the entrepreneurial stripe, grow exceedingly bored with a well-run company. In this situation, both the company and the owner may be better off if another, more-engaged entity takes over.

An owner selling his business so that someone else can take it to the next level isn’t indicating that he can’t run the business; he may be setting his sights on his next business venture. He may be one of the vaunted serial entrepreneurs you’ve undoubtedly heard about. The world of M&A is rife with them, and everyone is better off as a result because entrepreneurs create jobs, new products, and better services.

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