When is the Right Time to Sell a Business?
A question not always easy to answer. There are lots of deals that you can look at with the benefit of 20-20 hindsight and say, "Wow, they really sold at the right time!" and there are also lots of deals where you can look back and say, "Boy, they waited too long to sell!" While it is always difficult to look into the crystal ball and determine the best time to sell, there are nevertheless a number of basic guidelines that can be gleaned from an examination of the vast number of deals that have taken place over the years. In the article that follows, we will discuss these issues in more detail.

• What is the overall M&A climate? Under the theory that a rising tide lifts all boats (the converse is also true), one of the first things you should look at if you are considering a divestiture is the overall climate of the M&A market. The last several years in the chemical industry has witnessed a substantial swing in transaction values. Clearly multiples today are a good bit lower than they were 2-5 years ago. Gone are those heady days when you would sometimes see double digit EBITDA multiples. Contrast the Hercules acquisition of BetzDearborn in 1998 at a multiple in excess of 10x with the subsequent sale by Hercules of a large part of BetzDearborn to GE last year at a multiple in the 8x range.
• Where is your segment heading? In addition to looking at the overall M&A climate, you should also take a look at the particular segment you are in in the chemical industry and see where it is heading. In this context, you should look at both the short term outlook as well as the long term. If a business is cyclical, like many in the petrochemical segment, try to determine where in the cycle you are. In addition, it is very important to look at the long-term trends. An example of a significant long term trend is in textile chemicals and dyes, a segment of the U.S. chemical industry that has deteriorated markedly over the last several years. With the benefit of 20-20 hindsight it is obvious that most textile chemical businesses are worth much less today than they were several years ago. Could this have been foreseen? Maybe, maybe not. But to take an example from today's market, the long term threat posed by China is clearly there today for certain segments of the chemical industry, such as furniture adhesives.
  
• Where is your business heading? In addition to looking at the overall M&A climate and the trends in your particular segment of the chemical industry, a close look at the trends for your particular business is obviously the most relevant consideration and in some ways overlaps the previous discussion of industry trends. There are a number of business that have thrived in times when the overall M&A market is down. And conversely, some business have done poorly while times have been good for most others.
• Are there personal issues or other intangible factors at play? On top of all these considerations, weighing very heavily, and many times of paramount importance, are personal issues and other intangibles facing a closely held company. Does the owner or any key employee want to retire at some point? Or does he/she want to run the business for the next 20 years. Are there health problems that have arisen? Do shareholders have differing objectives? Is the business overly leveraged and struggling to pay down debt? Many decisions to sell are prompted by these "non-business" factors, often times to the detriment of the seller. When it comes to issues such as these, the best lesson of all is this: sell when you don't have to.
  
  So when is the best time to sell? Clearly the best time to sell is when all the stars are aligned together - when overall M&A multiples are peaking, when your segment of the chemical industry is growing nicely, when your own business is on a steady uphill trajectory, and when there is no pressure to sell. How often does this happen? Never. And so, tradeoffs need to be made.