How to Identify the Ideal Moment to Sell My Company?

How to Identify the Ideal Moment to Sell My Company?

The Mergers and Acquisitions (M&A) market is growing within the Portuguese economic paradigm, aligning itself with the behaviours and dynamics of more developed economies. In this regard, there is an increasing trend of companies and business owners voluntarily initiating M&A processes.

Historically, the importance of these processes in Portugal was minimal and generally reactive, driven by approaches from international companies or the lack of succession plans for partners/shareholders. However, this scenario has been changing, and a more proactive stance is now observed among key players in the Portuguese M&A sector, for three main reasons: greater financial literacy among business owners, the proliferation of Venture Capital firms, and the drive for increased international competitiveness.

From the seller's perspective, it is crucial to initiate the M&A process at a time that allows for the maximisation of the transaction price. Therefore, voluntarily starting the process when the company is in a healthy state can be highly relevant. A reactive stance, whether due to an approach, experienced difficulties, or structural changes within the company, may result in a sale at lower values.

Aware of the previously mentioned factors and the active search for business opportunities, many business owners are now voluntarily initiating sale processes with the expectation of achieving a significant cash-out. As a result, more and more healthy companies are looking for buyers.

The proper identification of quantitative and qualitative factors can form the basis for determining the ideal moment to sell a company. In this regard, the following key factors stand out:

• Revenue

Ideally, the company should be experiencing growth in Sales/Provision of Services. Even if the growth is not rapid, it is essential to have a solid and sustained growth trajectory, along with prospects for maintaining growth in the future. Innovation and Development projects expected to generate revenue can be a valuable asset.

• Margins

High revenue alone may not indicate an efficient production structure. Therefore, the company to be sold should have attractive operating margins (Gross Margin and EBITDA) and preferably above the industry average.

• Working Capital

Just as Margins should accompany Revenue, the Working Capital (specifically, the evolution of its constituent elements) should align with the results achieved. Only in this way is it possible to have an accurate view of the company's performance and estimate Free Cash Flows, a key indicator for investors.

• Debt Level

Although often underestimated, external financing is not a depreciating factor but is, in fact, advisable, as moderate levels can increase company value. A company will optimise its transaction price if it maintains controlled debt levels, with operating results that allow for its coverage within a few financial years, if necessary.

• Organisational Structure for Management Exit

Besides financial health, it is also crucial that the company is operationally prepared to continue evolving after the departure of its partners/shareholders. Consequently, a company can maximise its transaction price when its organisational structure is capable of ensuring a smooth leadership transition with minimal impact.

Although many other factors are considered by investors when analysing targets, whether during Due Diligence or earlier stages, the aforementioned factors significantly influence the identification of the ideal moment to sell a company.

Ultimately, the price will always be the result of negotiations between the parties, but proper preparation and the decision to sell at the right moment will undoubtedly play a crucial role in maximising the transaction value.

Yunit Consulting has a qualified Corporate Finance team capable of assisting you, not only in identifying the best moment to sell your company but also throughout the entire sale process.

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Last updated: 4 February 2025