Frequently, within business groups one of the companies produces less income or more headaches, sometimes both.
On occasion, there isn’t enough time to pay sufficient attention to one of the companies because that business has become complex or because it has fallen outside of the principal activity of the group.
Other times, the owner finds another business that is more profitable, requires less effort, has more of a future or simply has better returns.
After many years running a manufacturer of industrial components for cars but having little profits to show for his efforts, the owner started a side project. The surprise came when he saw that he made much more money with much less effort on this side project than with his complex manufacturing business. Once he realized this, he hired us to sell his previous company so he could focus 100% on the new business. We found a large industrial groups that were interested in the business making it possible for him to maximize value out of his life’s work and focus his efforts on his new business.
At times, the way for profitable companies in the group to grow is to carve out divisions that are not profitable, that don’t generate resources or don’t fit with the competitive strategy of the company.
This kind of decisions require courage. But if there were a time to sell non-performing companies that time is now: the prices being paid by investors today on average are the highest they have been for nearly the last ten years; deals and fundraising are also fat, with buyout multiples of EBITDA that have risen from 5X to 10X and are now frequently seen in the teens.
This article was written by Enrique Quemada, Chairman of ONEtoONE Corporate Finance Group.
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