Retail Energy Mergers & Acquisitions: Is it time to sell your Business?

By David Mirza

Mid- and large-size retail energy providers such as Crius Energy, Source Power & Gas, Volterra Energy, and Frontier Utilities being acquired in the past few months is a sign that acquisitions are not slowing down anytime soon. I feel confident that we will see 5-7 more M&A announcements in the remainder of 2019.

There are different reasons why business owners are choosing to sell their business. There may come a time when selling your company might be the best decision you can make.  Here are a few signs to watch out for:

  1. Significant Increase in Business Value: Running a business is always risky – the bigger the business, the more risks you must take. When your business value has substantially grown from when you first started, it’s time to think about selling and liquefying because this is the time when your book has the best value.
  2. Market is Moving Against You: We are currently in an era of fast-moving technological changes, PUC changes, and competition is higher than ever before even as acquisitions continue.  If the market trend is clearly moving against you amidst all these changes, it’s essential that you be prepared for a sale before your business is rendered worthless.
  3. Stagnant Growth: Every business should continually find new ways to grow. When there comes a time that you feel your growth has become stagnant, it’s time to sell your business to someone who can take it to the next level.
  4. Risk Averse Leadership: Taking risks is a major part of business growth. When taking new risks instills fear, as opposed to excitement for the opportunity, it’s a sign to sell your book and move on to the next opportunity. Not taking needed risks leads to stagnant growth.
  5. Lack of Capital: If you’re in a position where you need more capital to grow your business, but have no way of acquiring that capital, it may be a good idea to consider selling. Since small businesses are generally highly illiquid and risky, if you are presented with the opportunity to sell, you should take advantage of it. Even better if the value of your business is already high.
  6. Strategy to Sell the Business: A lot of people start a business with the intention of growing it to a point where they can sell it and earn a large sum of money. If this was the purpose of starting your business, and it has reached the point of desired growth, it’s a great time to sell the business. We see so many startups that earn a substantial profit for selling their prototypes.
  7. Low Capital Gains Tax: The capital gains tax rate is at an all-time low. If you have substantially grown your business and are at an age where you are considering retirement, it’s a good time to take advantage of the low tax rates by selling.
  8. Poor Business Performance: Running a business that is struggling can be very stressful. If you have exhausted every possible solution to try and revive your business, but to no avail, it’s time to sell it to someone who possesses the skills and assets to revive and grow it. Just keep in mind – you cannot expect to earn much from the sale.
  9. Retirement or Business Partner Wants to Sell: The goal of many entrepreneurs is to sell their business as an exit strategy to comfortably provide for themselves during retirement. If your business partner is ready to sell and move on, you have two options: you either buy out their shares or sell the business entirely to a third party. Most of the time, the second option is more lucrative because you will have an equal, prorated share from the sale.

In this competitive M&A environment, acquisitions are a differentiating factor for large retailers. Large retailers know that buying a book of business is the fastest way to grow customer count and revenues. As a result, the M&A process has become an ongoing responsibility among executive teams accountable to investors, customers, employees and their own exacting standards for success.

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David Mirza is President of MedTractions.