Boards should consider selling a company when performance is strong, not as a last resort

The Common Approach to M&A

Many company boards treat mergers and acquisitions (M&A) as a fallback plan, considering a sale only when growth slows, cash becomes tight, or strategic options narrow. This approach often leads to a sale when the company's leverage is diminished, reducing potential valuation and favorable terms. The typical trigger for considering a sale is often when venture capitalists seek liquidity, usually around five years into an investment.

Selling from a Position of Strength

The most opportune time to consider selling a company is when it is performing exceptionally well. When revenue is growing rapidly, customer satisfaction is high, retention is strong, and the leadership team is optimistic, companies command their highest valuations. Strategic acquirers are willing to pay premiums for businesses that demonstrate strong market momentum and success, rather than those struggling to survive.

Founder Energy and Strategic Discussions

Founder fatigue can be another signal for boards to consider strategic options, including a potential sale. Founders often drive vision, product strategy, recruiting, and culture in growth-stage companies. After a decade or more, a founder's personal objectives may shift. While this doesn't always necessitate a sale, it should prompt strategic discussions, potentially leading to a CEO transition or a secondary transaction for founder liquidity, before performance is affected.

Valuable Inbound Interest

Boards should also pay attention to inbound acquisition interest from buyers. While CEOs might dismiss early interest, repeated inquiries can provide valuable information about market demand and potential valuations. Strategic buyers invest significant resources in identifying acquisition targets, and their interest can offer insights into the company's market position and perceived value.