WHAT'S THE RIGHT MOMENT to sell your business?

Okay, you want to sell at the top. When's that? There's no telling when a trend--good or ill--has run its course. But pay attention to certain critical factors.

The climate for M&A activity.

It's scalding, thanks to the hyperactive stock market and widespread consolidations. Maybe the multibillion-dollar deals are getting all the press. But middle-market mergers are also hot: In general, prices for companies with revenues between $5 million and $50 million have jumped from three to five times operating earnings (net before depreciation, interest and taxes) just five years ago, to six to eight times today, estimates Mitchell.

Conditions in your industry.

Are your competitors or customers being acquired? If so, it may be time to sell. With a larger company shopping around for a new line of business like yours--looking for what's called a "platform acquisition"--you may get a better price by selling early into a consolidation wave than later. Gary Bergren was lucky enough to catch the start of such a trend in hydraulic equipment in 1997. He sold his Minneapolis-based Power Systems just in time: Months later half of his leading customers had changed hands--which would have dried up business.

Bad news at home.

You probably don't want to attract a potential buyer's scrutiny if you are in the middle of litigation, are wrestling with environmental problems or have just lost a key manager. "You don't want to look like the Ugly Duckling," says Kevin Wold, chairman of Progressive International Corp., a Kent, Wash.-based maker of kitchen gadgets. Wold held off suitors while undertaking an upgrade of his warehouse and computers. The investment in new equipment helped to raise the price he eventually got for his company by as much as 40%.

Good news around the corner.

You may want to hold back if you're on the cusp of dramatic growth--imminent approval of a patent that could triple your business, for example, or a near-agreement with your biggest customer to date. Tony B. Gelbart had offers as low as $600,000 for his toothbrush company, Carewell Industries. But with promising licensing agreements pending on flossing devices and a toothpaste cap, he held out for six years--and sold out to Playtex for $10 million.

The unexpected bid.

"Unsolicited offers don't come that frequently," says Randy Myer, professor of entrepreneurship at Pace University in White Plains, N.Y. "If somebody knocks on your door, it generally means there's something you have that he wants." Don't jump too soon, though. If one company is interested, its competitors will be, too.

Source: Leigh Gallagher