The company sees how its margins are getting stretched and each time it becomes more difficult to generate profits. It is a medium sized company that can’t benefit from the same economies of scale and other advantages of large companies yet it doesn’t have the flexibility of smaller companies either.
The owner is conscious that the product offering is small and not very differentiated, with mostly mature products and few products in development. The company’s bottom line is hurting.
In these cases, understanding that the future will bring a continuous deterioration of value and that an economic crisis or losing a key client can be devastating, might be enough motivation to look for a buyer and secure the value before it’s too late.
Sometimes the appearance of substitute products allows a business owner to see that the long term is not going to be profitable with his or her current business model and that something must radically change. However, the business owner is not capable of accomplishing the transformation alone.
We had a client with a company that manufactured bridge cranes that was experiencing continuously shrinking margins. The company was owned by two family branches: one managed the company and the other challenged all the decisions made by the management team. Tensions had escalated and there were more family politics involved than the politics of the company. This period coincided with the aggressive entrance of two multinationals that started to lower prices in order to eliminate smaller competitors. If you want to compete against those types of titans, you require a united and aligned team with a common strategy, which seemed impossible in this family. They decided to sell the company before it was too late. They gave us a mandate and we sold the company to a German group that was rapidly expanding to an international level.
If you anticipate that other relevant competitors will abandon the sector, make a decision to sell before your are the last to do so.
This article was written by Enrique Quemada, Chairman of ONEtoONE Corporate Finance Group.