Only a year or two ago, an emerging growth or middle-market company (revenues from a few million to several hundred million dollars) had a good chance of being sold if it was reasonably well run. With private equity flowing, plenty of debt and liquidity, and strategic buyers, growing valuations were up and it was a seller's market.
Today, "A" companies--those that are the leaders in their market segments and are high performing--will likely find buyers at traditional valuations and premiums. At the other end of the spectrum, however, the "C" and "D" players are trying to survive or being liquidated.
So what about the "Bs"?
The large majority of emerging growth and middle-market companies fit the "B" profile. Unfortunately, many in this group are stuck, at least in terms of creating shareholder liquidity or selling.
Overcoming the Barbell Effect
At a minimum "B" companies are being transacted at significantly reduced multiples. You can think of this as a bar bell effect, where the companies on the right side are sellable and those on the left are being liquidated, but those in the middle are not moving.
The quandary for "B" owners and managers needing or wanting liquidity is that, at best, the company will sell for much less than what is expected. At worst, there will be no buyer at all--or no financing for a buyer.
The value of a company--whether for growing, selling, or financing--is eventually based on future cash flow, adjusted for the likelihood of it occurring. So the actions you take to position a company for sale are nearly the same as those to grow it or obtain new capital.
In generic terms, you can increase the value of the business by increasing cash flow while using the same or less capital. If you cannot increase the cash flow, focus on reducing the invested capital. If you cannot significantly impact the cash flow or invested capital, you may be able to reduce the risk of the capital invested--this will also increase the value.