What to do two years out
By Paul Puri
Chief Development Officer and Managing Director
Selling your oilfield services company requires good preparation for those who seek to maximize transaction price.
In this blog, we’ll take a look at what companies should be doing two years out from the time that they anticipate they’ll want to sell.
The oilfield business is a cyclical industry with big swings of money going in and coming out of the sector. Even companies with good fundamentals can get whipsawed as geopolitics and international activity by foreign governments play into commodity prices.
Here’s some advice on how to prepare your oilfield services company two years out for a transaction:
- Don’t swing for the fences. To be successful in this cyclical business, it’s important to be prepared for the potential down cycles. Some companies overleverage in the good times and end up saddled with heavy debt when the cycle turns downward and orders cancel. A debt-ridden company will dampen buyer interest.
- Know your limits. Most entrepreneurs know how large a company they are comfortable building. Once they reach that level, they know a different skillset will be needed to take the business to the next level. Have a good understanding of your limits.
- Don’t try to time the peak of the cycle. It is usually impossible to accurately time the peak of the market and to manage to sell your company at the peak. Build the business to the level of your competency and let an investment bank adviser help determine the timing of your exit.
- Professionalize your organization. Make your company attractive to suitors by ensuring it can operate without you. It is vital to have a strong board and a good management team who can run the company when you are gone.
- Get your financial house in order. Put technology in place that will give you day-to-day insight on things such as order flow, invoices and payables. Hire a CFO with high credentials and an outside auditor. Strong financial personnel coupled with good record-keeping will give you a lot of upside in a transaction as it shows a healthy, well-thought-out company.
- Innovation. Create competitive advantages that separate your products and services from others in the space. This will attract potential buyers.
- Have a vision. Where is the company going and how is it going to get there? You should be able to show your potential buyers the company’s strategic direction over the next couple of years and how a new player can capitalize on that movement.