David Nicholson, Vice Chairman of Polyconcept North America has, over 15 years, gone through three private equity buyouts of the business and has done multiple strategic acquisitions within the company's industry.

Looking at today's the market as a buyer, he says COVID made a huge impact on the market.

"Those companies that are still strong, really have proven to be resilient, and it's to some degree made our job a little bit easier to identify the right targets because the weaker companies largely, if they survived, still have a number of issues that they're working through," Nicholson said at the Pittsburgh Smart Business Dealmakers Conference.

Among the top considerations when buying a company is its quality in terms of the team as well as the quality of its infrastructure. It's about how much investment the company is going to have to put into the business on day one. So, as an owner preparing to sell, he advises that they look at their business in terms of what's its durability and what areas need to be strengthened. Also, is there a succession plan? And do they have the right advisors around them?  

"I think the companies that we've acquired that have really been thoughtful about that process are the ones that we paid the highest price for," Nicholson says.

The challenges he typically sees in sellers come in three buckets. One is that the seller is not ready.

"They enter a process thinking they're ready," he says. "They're not clear on the outcome that they want. And we get through the process and typically the seller at that point just says, Hey, I'm not going to do a deal. I'm not ready either emotionally, or something else has happened."

The other circumstance is that the business isn't ready, which is about preparation as well as assembling the right advisers and thinking through the story the seller is going to tell prospective buyers.

"Those that are able to tell a story, particularly in this environment, of how the business is going to continue to grow are going to be able to command both more interest and higher valuations," he says.

And lastly, he says sellers ideally want a scenario in which they have a number of parties very interested in buying the business late in the process. Otherwise, the seller can be left with too few options if something unexpected were to happen.

During a process, Nicholson says sellers should work to avoid surprises. He says ahead of the company's last transaction the business put itself through a Q of E a year before it went to market just to show them where they either had gaps or to identify questions the company was likely to get from buyers. The company also went through a full market diligence.  

"If you're thinking about (selling), even three years from now, those are exercises that, if nothing else, you're going to learn a lot about your business in terms of where there are gaps, where there are holes," Nicholson says.

But maximizing value is also about selling at the right time and for the right reasons. The timing a seller can't always control, but the reason is something they can.

"As a seller, being clear on the condition of your business and making sure that you're not caught in a circumstance where you're forced to sell — those are typically the outcomes that are the least attractive for sellers," he says. "Either something happens — life circumstance, business circumstance — that your hand is forced to sell and the business isn't ready. And those typically are not great outcomes."

Illustrating the point, he says the company bought a business that was run by several family mambers. He says they were selling for the right reasons — some of the family wanted to exit the business while others wanted to stay — but they were selling at the wrong time.

"They were in a circumstance where, because they hadn't aligned and hadn't planned, they really had no other options," he says.

It was great opportunity as a buyer, he says, but certainly not ideal for the family.

On the flip side, he says they bought a business at a very healthy multiple from a seller that he had been in discussions with for several years.

"He understood us as buyers, but he was also able to articulate very clearly the value his business would deliver for our business," Nicholson says. "And he had been very thoughtful about it, he'd been very thoughtful about preparing. He had aligned his shareholders. He had aligned his advisers. And when the time was right, it was a very easy acquisition for us and we were very happy to pay a big multiple for it."