It’s sunny, hot, and humid. Summer yes, but there are telltale signs that a change is in the air. Cooler misty mornings, ever so subtle color change in the leaves of some trees, tiny acorns dropping, and a few more leaves on the ground. It’s still 84 degrees, but not the same overall feel of 84 degrees in June. The air is just a little different. The overall look and feel just a little different.

So goes my read of the M&A market.

XLCS had a record year in 2018 with 17 completed transactions. This year 10 so far, and every indication that we will exceed last year-and possibly by a huge margin. But….it’s just a little different. A few less offers, some tighter performance based structures, a few more questions from lending sources, and bit of seasonal weariness. Make no mistake, it’s still summer in M&A, but seasons must change and it may have begun.

The question is, “Will it be an early Fall? Or is it late breaking days of Autumn warmth? A mild winter?”… One thing is certain, it has been a long summer. If only we had the M&A Woolly Bear Caterpillar.

By Robert Contaldo, XLCS Chairman and Managing Partner

The Year: 2018


2018 brought big changes, lots of excitement, and a company record of 17 completed transactions across 11 industries from aerospace and fasteners to education and equipment manufacturing.

It has also brought the biggest change to our company in over 20 years. A new brand with new enthusiasm. We have taken what was good and made it better. We took every part of our business and asked the question that frames our professional existence, and that is: “What must we do to each component of our business to ensure the highest degree of success for our client?”

Process, presentation, market analysis, personal and team dedication – all filtered through what our name embodies: Investment Banking to the Highest Degree™. We strive to continually refine everything, both professionally and personally, and pray we have done so again in 2018. 

To that end, we have refined our brand to better depict who we are and what we strive for. XLS has become XLCS, the latter saying precisely the name on which we base our promise… “Excelsius”… which means “To the Highest Degree”. The same ownership and the same passion.  

2019 is here bringing change, be it known or unknown. If we can help, we bring with us the promise of XLCS.

Bob Contaldo
Chairman & Managing Partner
XLCS Partners, Inc.

Selling your business, which is perhaps your largest asset, can be a difficult decision. It has been part of you and part of your family. It has been good to you like an old friend. You have loved it – you have cursed it – you have nurtured it – you have seen it from birth through the teen years and into maturity. Unlike us, it can live for generations – though the time will come when it must change hands.

When the cycle of business and our personal circumstances begin to herald the transition, it should be addressed in order to realize the financial security for which it was created.

After 41 years of selling companies, I have found that it is nearly impossible to convince a business owner to sell until the business and personal reasons align. But once they do, no good ever comes from delaying a sale.

So – here are eleven points to consider when deciding whether or not it is time to sell your business:

1) The Thrill Is Gone

We all go through seasons in life. Young business owners focus on raising a family, planning for the future and striving for a financially secure retirement. To that end, fighting the battles and making the sacrifices are necessary and expected as part of a growing business. However, there comes a time when a business owner does not care to take the business any further. The battles and victories that at one time were energizing have now lost their importance, and have become somewhat boring and wearisome. The focus shifts to more time off, warmer weather, grandkids, or more leisure time activities. Many business owners want to pursue a new direction in life that satisfies a greater personal or community need.

2) Your Marketplace Is Changing

Businesses that do not change will ultimately fade away. Change requires new market direction, more equipment, more people, new technology, expanded facilities, and other capital investment. Market changes can include more complexities involving COVID-19, socioeconomic upheaval, government regulations, taxes, banking, certification requirements, customer reporting requirements, global competition that threatens margins and customers seeking fewer suppliers and lower costs. Many times, the direction is clear, but the mind, body, and emotions are not willing to embrace change.

3) Risk Becomes a Four Letter Word

With all that needs to be done in a changing marketplace, business owners cannot afford to be squeamish when it comes to ongoing investment in the company. When one reaches the point of not making logical investments in the company or tends to count the debt rather than the probable benefit, it might be time to sell. Most business owners reach a point where they are tired of “betting the farm”, tired of personal guarantees, tired of meeting financing requirements and covenants, and worn out over protecting assets from legal liability. There comes a time when it makes sense to “take some chips off the table” and build financial firewalls.

 4) A Change Would Be Good for the Family

Many have experienced the challenges of a family run business. As the succeeding generation grows into personal and business maturity, it may be time for a generational transfer of ownership. A recapitalization with a Private Equity Group as a financial partner can allow the founding shareholders to take the lion’s share of the business value in cash at closing, while the succeeding generation reinvests (through a small amount of the proceeds) for a meaningful share of the company going forward. The company would also have access to growth capital. This step generally requires a five-year commitment so foresight and planning are essential. How great would it be to again have a family relationship that is not encroached upon by business? Is the business stealing time from your kids or grandkids? Are you trading memories for dollars you’ll never need? Many business owners have delayed a sale in spite of the concerns of a loving spouse who desires a different and better life for themselves…until it’s too late.

5) Seller’s Market

The three principal buyer groups are: Private Equity Groups, Strategic Acquirers, and Family Funds.

Private Equity Groups have become the new conglomerates with overflowing levels of investment capital. With 2,500 or so Private Equity Groups in the United States and a like number overseas, with an estimated $2.0 trillion to invest, competition to buy companies remains robust among financial buyers. Multiple offers can be a reality for even some marginal industries or smaller companies. Premiums are being paid for companies as demand exceeds supply.

Strategic Acquirers see growth through acquisitions as the preferred way to gain market share quickly, add product lines, augment human resources, enhance management, and stay competitive.

From a valuation standpoint, strategic acquirers have historically been either the best or worst buyers (more often the worst) until the past few years. In many cases, their top competition has been acquired by a Private Equity Group which by mandate begins to effectuate meaningful growth. As the industry and market begins to take notice, it puts pressure on the privately owned company to do likewise.

Family funds can be worthy suitors. These sophisticated and respected families bring significant personal finances, outside private investment capital, experience, contacts, expertise, and many times a long-term investment strategy.

COVID-19 Update

With almost $2 trillion of Private Equity capital to invest, the mandate to acquire quality companies remains of paramount importance and the field of financially solid companies has diminished, at least for the time being. Companies that have performed well during the COVID-19 pandemic may actually trade at valuations higher than the (already high) pre-COVID-19 levels. Strategic acquirers in industries that are performing well during COVID are expected to be as acquisitive as pre-COVID-19 levels.

6) Unusual Financial Gain

Perhaps you have been approached by a bona fide buyer who is larger, cash heavy, willing to overpay, and inebriated with the desire to own your company. (We can dream, can’t we?)

7) The Business Is Growing

It seems incongruent that a business owner should consider selling when growth is accelerating, but growth can end the life of a business – fast. Cash flow becomes the monster that consumes. Even in circumstances where growth is more controlled, businesses reach a point where professional management at a higher level is demanded. The founder of the company is wise to recognize that the large business dynamic has thrust him into unfamiliar territory, requiring personnel changes; organizational upgrades; a bigger, more complicated, much different way of thinking; and a doubling-down of time, effort and commitment.

8) The Business Is Flat

If flat, declining or inconsistent financial performance characterizes your business over the past several years and you just cannot seem to “crack the code”, let someone else figure it out! A strategic buyer, or an individual buyer with a dynamic skill set, or a Private Equity Group with more money and contacts might hold the key. Many business owners fail to realize that by staying in business under these circumstances, they forfeit personal income opportunities elsewhere and personal finances can be insidiously eroded.

9) Managing People Has Worn You Out

Do you long for the time when you need to only manage yourself? Are employee issues, government regulations, unions, health insurance, profit sharing, and retirement plans driving you to the brink?

10) My Partner Is A Problem

Most partnerships have a problem partner; if yours doesn’t, it might be you. Think: Jerry Lewis/Dean Martin; The Beatles, The Eagles; some marriages; and unfortunately, many businesses. Interestingly, we’ve found that most partnership problems are exacerbated by making more money – after the partners had been unified growing the business and defeating their common enemies. Many times, financial success spawns a disparate commitment toward reaching the next level as one continues to push and the other is dragged along. Every partnership begins with a great meal and most end with some kind of indigestion.

11) Personal Compelling Reasons

The reason for considering selling a business will generally transcend the enterprise value of the business (though not to minimize the value component). The fundamental checkpoint in considering the sale of a business is this: “Does this business stand in the way of doing something else with my life?”

Hopefully the decision to sell is voluntary and not due to circumstances that necessitate a sale; but in any event, an exit strategy should be considered as part of estate planning since life is uncertain. An expert team comprised of an Investment Banking Professional and financial and legal counsel is a must.

All business owners experience all or some of these points from time to time with varying intensity. When that trusted “gut” feeling indicates more than a passing notion of selling, it may be time to explore options. The reality is that more business owners have said, “I wish I had sold sooner” than “I sold too soon”.

By Robert Contaldo

About XLCS Partners, Inc.
XLCS Partners is an investment banking firm providing M&A advisory services to select clients globally. More information is available at www.xlcspartners.com.