Safety company owners today are seeing probably the most intense M&A market the industry has ever seen, and…  it’s fun to watch.

June of 2015 ended with a purchase of Capital Safety by 3M, for roughly 5.8 x sales. (That’s a multiple of gross revenue – NOT EBITDA) Capital Safety modestly estimated that the price they received was some 14 times adjusted EBITDA for their forthcoming year. That would mean that the profits related to that multiplier would have been expected to be $178M for the coming year. They said that the company’s sales growth has averaged 10% per year. Last year sales were $430M, so they might be expected to be $473M for 2015. $178M of profits would be about 38% of sales, if this were correct.  It’s possible that Capital Safety was that enormously profitable, but I suspect that perhaps their 14x was adjusted for a modesty factor. (It’s almost embarrassing to have achieved such an astounding price.)

KKR (seller of Capital Safety) is a very smart owner/operator. And this industry is great. And Capital Safety has recently penetrated a growth market in the international business community that’s extremely promising.  No two ways about it – that company was “hot stuff.”

The average middle market company can’t expect results like that – the results are truly and fairly indicative of a great upswing in trend, in a market that is at a high point in history.

When we talk to safety owners today, we get a consistent flow of questions about how to best take advantage of today’s marketplace. Part of it is raw timing. This is a power-house year for M&A. But another part of it comes from carefully putting together a structured plan to achieve top competition for the sale.  Here is a recap of a handful of key tips for prospective sellers to consider as they approach the process.

1 - Control confidentiality

In the very earliest conversations regarding possible sale of a company, the buyer should be required to sign a legally binding commitment to confidentiality. News of potential consideration of sale makes employees and customers nervous. To keep the process under control, hire outside advisors to handle calls with buyers offsite. (Avoid the “closed door” syndrome, which is apt to frighten staff.)

2 - Explore a broad range of buyers

Finding the best buyers requires intense efforts over a wide range of possibilities. To maximize results, sellers need to search much more broadly than they would ever guess. Almost all sellers think, at the outset, that they know who the likely best buyers will be. Experience has taught us that they are never correct. The best buyers are not the obvious. They usually aren’t horizontal companies (in the same business as the seller) or vertical (customers or suppliers). Instead they come from an off-center relationship, where the buyer hopes to add new products or capabilities, or to gain entry into new markets.

3 - Be slow to accept exclusivity

Buyers are often very quick to put forward a “letter of intent” which they ask the seller to sign, before they proceed with due diligence. When the seller agrees to cut off further discussion with alternative buyers, he loses power in negotiations. Buyers turned away will usually not come back. (They worry about why the other transaction may have fallen through.) Sellers need to consider requiring a nonrefundable deposit, before accepting exclusivity. There is no better pressure for buyers to remain fair-minded in working through remaining details.

4 - Demand clear and thorough agreements

Make sure final definitive agreements are clear, to both sides. About 25% of acquisitions in the past year have resulted in litigation, or in mandated arbitration, due to disagreements about post-closing payments, or about indemnifications required around representations and warranties. Clear and well-written agreement terms mean the seller will likely keep his proceeds, long after the sale is complete.

5 - Protect any retained equity

For sellers required to keep a portion of the ownership post sale, it is critical to provide for an exit mechanism. Stipulate when the minority stock will be repurchased, and what will be paid for the stock, based on formula value to roll to the future. Equity fund purchases are common today, at strong and competitive prices, but they often continue to be partners in the future, so clean and clear shareholder agreements are a must.

The current environment is great for sellers, and bodes well for continued growth in the industry overall.  Also, there is no better protection for employees than major investment by a new and enthused buyer. If you hope to take advantage of this booming marketplace, you will be best served by moving decisively to grab the momentum.  Safety company sellers will do better today than ever before.