Frequently, within business groups one of the companies produces less income or more headaches, sometimes both. Sometimes, it’s time to sell underperforming business units to refocus efforts on more profitable areas.
On occasion, there isn’t enough time to pay sufficient attention to one of the companies. That business has become complex or has fallen outside of the principal activity of the group.
Other times, the owner finds another business that is more profitable. A business which requires less effort, has more of a future or simply has better returns.
After many years running a manufacturer of industrial components for cars, the owner had little profit to show. He started a side project. Surprisingly he made much more money with far less effort than his complex manufacturing business. Realizing this, he hired us to sell his underperforming business units to focus entirely on his new, profitable venture. We found a large industrial group interested in the business, allowing him to maximize value from his life’s work and fully concentrate on growing 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. Buyout multiples of EBITDA have risen from 5X to 10X and are now frequently seen in the teens.
This article was written by Enrique Quemada, Chairman of ONEtoONE.