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Guest Opinion: Thinking about selling your bike business?

Published April 20, 2016
A guest opinion article by Steve Maxwell and Felix Magowan.

As discussed in the last two guest opinion articles (here, and here), a wave of consolidation has swept the bike business: Merger and acquisition activity seems constant. The big guys – Shimano, Trek and the like – seem always in the process of buying another company. And regional retail chain-store "roll-ups" are increasingly common. Meanwhile, across the bike industry, there are hundreds of smaller and family-owned retail businesses watching these headlines, trying to figure out what the trends mean. What is my business worth? Are there buyers out there who might be interested in my business? When is the right time to sell?

Unfortunately, a lot of transactions don't work out very well — and that's true in every industry. But with more attention to a few simple guidelines, a potential seller can improve the likelihood of a successful deal — and one that guarantees you the highest price. Here are 10 key points to keep in mind when thinking about selling your business.

Timing: Most people hold on to their business or their stores too long from a value perspective. It's human nature — because it's scary to change the status quo. There's always that lingering belief that things might be better tomorrow; however, all the statistics say that a seller gets the highest price when things are going well. So think ahead and be ready to take advantage of an opportunity when it knocks. As they say, sometimes it's better to be lucky than to be smart.

Good Financials: The better the quality of your financial information, the more likely a buyer will pay a premium for your business. Why? Because it removes a lot of the doubt and unknowns for him. And if your financial statements are audited or reviewed by an outside CPA – all the better. A good budgeting process and solid forecasts for the next couple years can also entice a buyer into paying more.

Be Different: If you're doing the same thing as the guy down the street, you're not going to get a premium price for your business. What sets you apart from the competition? A strong management team, broader product offering, a sustainable customer base, better customer service? Try to differentiate yourself from the pack.

Decide What You Really Need in a Deal: Develop a mental profile of the right buyer; maybe even make a list of preferred suitors. The right deal requires a combination of many things, but try to think about and rank key attributes. Price is obviously the critical factor, but what about management continuity, operational independence — will you be able to retain your identity or will your business just be swallowed up into the larger entity? Will there be new and greater career development opportunities?

Understand What Your Business Is Worth: One universal maxim of business transactions is the seller invariably thinks that his business is worth more than the buyer does. Heading into a sale process without realistic value expectations is a recipe for problems down the road. So, get a valuation or appraisal of your business before you start the process — then you'll know roughly where you're starting from, and you'll be able to negotiate from a position of knowledge and strength.

Carefully Evaluate Your Buyer: This may seem obvious, but once you've started to "dance" with a specific buyer (or more than one) that offers the right fit, make sure you thoroughly investigate them. Ask the difficult questions. Are they financially capable? What is their general management style? Who will you report to? Ask to talk to firms they have acquired in the past, and see how those sellers fared. And be aware: Many firms are good at buying but not so good at making acquisitions actually work.

Hire the Right Help: Unless you are a large company, you may not have the resources internally to negotiate and close a successful deal. You'll need an attorney as you negotiate the details of a final purchase agreement. An intermediary broker or adviser can help you craft the appropriate strategy, and assist in identifying and connecting with the right types of buyers. The good news here is that you usually don't have to pay the adviser unless he delivers — transactional advisers typically work on a contingency basis.

Structure the Deal to Benefit You: There's more to a deal than the final price. The way the deal is structured can be almost as critical. Both stock and asset deals are common, and may involve payments in the form of cash, debt or stock. And those payments can be now or in the future. The financial structure of a deal can become very complex; however, creativity and different structural approaches can often solve a gap, and allow both you and the buyer to get comfortable.

Stand Up for Your Value: Make sure you know the valuation you would like to achieve, but also what you would be willing to settle for; know where you can give a little, and where you can't. And remember that the party on the other side of the table is going to be thinking the same way. There is always some "give and take" in making a successful deal happen. Standing up for your case, and being able to articulately defend it, will build the buyer's respect for you. It will also probably strengthen your relationship with the buyer in the future, even though you may have different objectives at this stage of the discussion.

Start Working Together: Think ahead about how the two firms will fit together in the future. Finalizing the deal only represents the first part of the job in terms of actually implementing a successful marriage – many veteran acquirers say that the real work begins after the deal closes. Most buyers aren't really interested in purchasing firms where the seller wants to disappear on his sailboat the next day; the buyer wants your experience and expertise too – that's what they are buying.

In summary, although some transactions in the bike industry haven't worked out very well, that doesn't mean that yours can't. Be prepared, think and plan ahead, but also be agile and flexible, and make sure that this decision — probably one of the most important of your life — will have the maximum opportunity to succeed. Sure, sometimes it's better to be lucky than to be smart, but perhaps better advice for successfully selling your firm is the old maxim: "Good luck happens when preparedness meets opportunity."

Steve Maxwell is co-editor of the cycling website and managing director of TechKNOWLEDGEy Strategic Group, a Boulder, Colorado-based firm specializing in merger and acquisition advisory services. Felix Magowan is partner at Pocket Ventures, a private equity firm, former owner of VeloNews, and a founding investor and board member at Pearl Izumi. Maxwell and Magowan have advised dozens of firms on strategy and transactional issues, and can respectively be reached in Boulder at (303) 442-4800 or (303) 443-4360, or via e-mail at or

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