Completing the Deal FAQs

Growth to Liquidity or Sell Now? A CEO’s Dilemma

We spend a lot of time advising executives, owners, CEOs and boards on critical decisions. One of the most complex, and impactful, is determining the optimal timing for a liquidity event – should you double down on growth initiatives aiming for a larger exit later, or is now the right time to sell? There’s no one-size-fits-all answer, and the wrong decision can leave significant value on the table. Below are some of the biggest mishaps we see companies make when grappling with this dilemma.

1. Confusing Momentum with Trajectory: A recent surge in revenue or profitability can be intoxicating. It’s easy to extrapolate that short-term momentum into long-term trajectory and justify a “growth to liquidity” strategy. However, true trajectory requires a deeper understanding of market dynamics, competitive pressures, and sustainable competitive advantages. Are you riding a wave, or have you built a foundation for sustained growth? Don’t let short-term wins cloud your judgment.
2. Overestimating Organic Growth Potential: Many CEOs overestimate their ability to achieve significant organic growth. Scaling a business is hard work, requiring significant investment in people, technology, and infrastructure. It also demands a clear and differentiated strategy. Be realistic about your organic growth potential. Don’t assume that past performance is indicative of future results, especially in evolving market conditions. A thorough market assessment and a brutally honest internal evaluation are essential.
3. Ignoring External Factors: CEOs often focus internally, neglecting the broader economic and industry landscape. Are interest rates rising? Is there a looming recession? Are there disruptive technologies on the horizon? These external factors can significantly impact valuation multiples and the overall attractiveness of your business to potential buyers. Ignoring these factors can lead to missed opportunities or, worse, a fire sale scenario.
4. Misjudging the M&A Market: Timing the market is notoriously difficult, but understanding the current M&A landscape is crucial. Is it a buyer’s market or a seller’s market? Are strategic acquirers actively looking for businesses like yours? What are the prevailing valuation multiples for comparable transactions? A deep understanding of the M&A market can help you determine whether now is the right time to sell or if waiting might yield a better outcome.
5. Failing to Objectively Assess the Management Team: Growth to liquidity often hinges on the strength and experience of the management team. Do you have the right people in place to execute your growth strategy? Are they committed to staying with the company for the long haul? A strong management team is essential for attracting investors and achieving your growth objectives. Be honest about the strengths and weaknesses of your team and address any gaps proactively.
6. Underestimating the Costs and Risks of Growth: Pursuing a growth to liquidity strategy is not without its costs and risks. It requires significant investment, and there’s no guarantee of success. What’s your plan B if you don’t achieve your growth targets? Have you considered the potential downside risks? A thorough risk assessment is essential before embarking on a growth trajectory.
7. Letting Ego Drive the Decision: Sometimes, CEOs are reluctant to sell because they view their company as their legacy. They want to see it continue to grow and thrive under their leadership. While this is understandable, it’s important to separate personal ego from sound business judgment. The ultimate goal should be to maximize shareholder value, even if that means stepping aside.

The decision to pursue a growth-to-liquidity strategy or sell now is a complex one. By avoiding these common mistakes, you can make a more informed decision that aligns with your long-term goals and maximizes value for your shareholders. At Westlake, we help companies navigate these critical decisions, providing objective advice and expert guidance throughout the process. If you’re grappling with this dilemma, we encourage you to reach out for a confidential discussion.