The Art of Selling Business

The Art of Selling Business

Why the deal? In most cases, the business owners sell their businesses for lifestyle, not financial, reasons. Usually, the return on the sale of successful businesses, after taxes, tends to be lower than what the owner was earning out of the business. Where sale is for lifestyle reasons, it’s likely that there is some flexibility in that date and accordingly, the deal price can vary a lot.

Primary Drivers for sale price:

·         Earnings or Owner’s Cash Flow

·         Market Multiple

Timing the sale: The best time to sell is when both Earnings and Market multiple are high. If the economy goes into a recession, both those numbers will probably go down and this can result in a much lower sale price than what you would have gotten before the recession.

Investors’ Expectation: The owner will then be expected to return the earnings to a higher level for about a year before a buyer will see the higher results and take those into account in presenting an offer. Buyers don’t just look at historical figures; they also look at the expected future outlook. If the sales and profits start to go down, a buyer may pull out of a deal or offer a lower price.

CASE Study: Let’s have a look at how the Sahara group – Air Sahara exited the aviation industry at peak and saved itself from the punitive conditions that haunt the industry till date.

The need to get your business on the market may not seem urgent when everything looks rosy, but it in fact is, if now is the right time.

• By 2007, Air Sahara had a market foothold of 12%
• In April 2007, Jet Airways, the then leading airline, acquired Air Sahara for a sum of INR 1,450 Cr. and continued operations as a wholly owned subsidiary under the name Jet Lite (India) Ltd.
• The deal helped the Sahara Group exit the airline business and concentrate on its other businesses-financial services, publishing and real estate
• The airline industry by that time had become extremely competitive as the costs incurred by the airlines were on the rise and they were unable to hike their fares
• All airlines slid deep into red with the combined losses of industry being INR 48 bn
• The operating margins in 2007-08 were at a negative 15 percent as the airlines could not pass cost on to the customers because of intense competition.
• The economic downturn of 2008-09 worsened the situation as the operating profits reduced further.
• By FY 2017-18, Jet Lite (India) Ltd. contributed 44% to the consolidated losses of its parent Jet Airways Ltd., thereby adding to the woes of the now distressed airline

Waiting to sell could mean you have to work many more years before you can get a good enough price to afford to do so. The need to get your business on the market may not seem urgent when everything looks rosy, but it in fact is, if now is the right time.