Understanding the M&A Motivation: Why a Business Founder Might Pursue a Sale
Key Takeaways:
Understanding a founder or owners’ motivation behind selling a business makes a significant difference in developing an optimal M&A strategy: Identifying underlying goals helps structure the deal, align expectations, and attract the right buyers.
Market conditions significantly impact the sale value: Timing plays a crucial role in business valuations, as economic cycles, interest rates, and regulatory changes all affect M&A activity. Selling during a strong market increases buyer competition, leading to better deals, while a sluggish M&A environment may delay sale transactions or reduce valuations.
An M&A Advisor Can Optimize the Sale Process: Selling a business involves complex negotiations, valuation assessments, and regulatory considerations. An M&A advisor provides expertise in market timing, deal structuring, and buyer identification to maximize sale value.
The Motivations Behind Selling a Business
The decision to sell a business is always complicated and multi-factorial. For business founders and owners who have built a successful business from the ground up, their motivations to pursue a sale may vary. Some business owners will choose to retire while others may want to monetize the equity value they have created and move on to pursue other interests. Below, we outline common business sale motivations.
Common Reasons for Selling a Business:
Retirement Planning & Business Ownership Succession
While in the depths of active growth, retirement and succession planning may seem like a far-off possibility. However, for companies that remain in the founder or owner’s control, it’s important to consider what will happen when you decide to retire. You may consider selling your ownership stake to a business partner(s) or employees. But business owners should also consider M&A, including selling to competitors, new market entrants, or private equity or family office investors as a possible retirement strategy.
Achieving an optimal result from selling your company when you’re ready to retire requires business owners to think well in advance about maximizing their company's value. This can be achieved by having a firm handle on the key business metrics that potential buyers are interested in, working through nonrecurring EBITDA addbacks, and developing a value creation plan. A key aspect of achieving an optimal valuation is not only demonstrating past success but also a strong future, giving potential buyers confidence that the business will continue to thrive after the owner retires. Working with an M&A advisor can help owners identify key value drivers that can meaningfully increase your business valuation during the sale process.
Capitalizing on Strong Market Conditions
Timing is a critical factor in M&A, influencing valuations and deal-making dynamics. Economic cycles, interest rates, and political conditions all shape a company's valuation and a counterparty’s willingness to transact. Potential acquirers are more aggressive when the economy is expanding and market sentiment is strong, while periods of economic contraction or uncertainty often dampen M&A deal activity. For example, in Q3-2024, M&A volumes lagged previous years as rising debt costs drove up the cost of capital, discouraging transactions across the board.
However, M&A cycles vary by industry. According to Ernst & Young, deal activity in oil and gas, technology, and life sciences is expected to rise in 2025. Regulatory factors also play a crucial role in the timing of M&A activity. Shifts in policy can either accelerate or hinder transactions. Are regulations tightening or loosening? Understanding their impact on your business and industry is essential for strategic decision-making.
Responding to Competitive Pressures
In increasingly competitive markets, business founders and owners may face pressure from larger, better-capitalized rivals, shifting industry dynamics, or new companies that are disruptive or have a competitive advantage. If a company fails to maintain its market share, doesn’t invest appropriately in technology or upgrades, or fails to respond to changing customer demand, the risk of value-erosion may become a real concern. An owner may choose to sell to a strategic acquirer to take advantage of operational efficiencies, additional resources, or economies of scale. In some cases, a sale may be the best way for the business to continue to thrive.
Investor or Lender Liquidity Pressure
For some founders and business owners that have raised third-party capital, outside investors or lenders can be the driving force behind the decision to pursue a sale transaction. Investors may have contractual rights that require a founder or business owner to provide them with liquidity, or the founder or business owner may feel a moral obligation to provide liquidity to early investors or co-founders. Likewise, upcoming debt maturities, covenant challenges, or missed interest payments can create urgent liquidity needs for lenders. Whatever the case, the need to provide liquidity to investors or lenders can trigger a decision to sell the entire company.
How an M&A Advisor Can Help
The right M&A Advisor provides support and guidance in navigating the complexities of M&A. Expert guidance on valuation, market timing, and deal structure to ensure a successful outcome.
An M&A Advisor will:
Provide deep market and / or industry knowledge
Provide access to a network of potential buyers
Help identify the right partners and negotiate favorable terms
Position the company for maximum value and find opportunities for more value creation
Manage the acquisition process to ensure a smooth transaction from initial planning to closing the deal, all while maintaining the seller’s best interests
“Even the most straightforward and favorable M&A deal involves negotiations, due diligence, legal and regulatory considerations, and unforeseen challenges.”
Even the most straightforward and favorable M&A deal involves negotiations, due diligence, legal and regulatory considerations, and unforeseen challenges. Leveraging an advisor provides a layer of sophistication and confidence so business owners can confidently pursue a business sale with the best possible outcome.
Selling a business is both a personal and strategic decision that requires careful planning. Keene Advisors is experienced in advising business owners on strategic and financial M&A deals. Our team has advised clients in connection with over $40 billion in corporate finance and M&A deals. We work directly with business owners to identify potential buyers and align long-term goals with favorable deal terms.
Contact us today to explore how we can advise you on your M&A strategy and help you achieve your acquisition objectives.
Disclaimer: This commentary is intended for general informational purposes only. Keene Advisors does not render or offer to render personalized financial, investment, tax, legal or accounting advice through this report. The information provided herein is not directed at any investor or category of investors and is provided solely as general information. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action. Keene Advisors does not provide securities related services or recommendations to retail investors. Nothing in this report should be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product.