Thinking of Selling Your Business?
Now is a Great Time to Do So!
As it does in all other markets, the concept of supply and demand obtains in the market for businesses. If you have been thinking about selling your business, the current climate for such deals is very favorable. The demand is high, credit is available at attractive terms and plenty of buyers are flush with cash. In short, it is a great time to sell your business
Why? What makes this such a fabulous time to sell? Well, several very favorable trend lines in some of the key financial and regulatory aspects of business ownership suggest that this is the case in many areas of the world. And these trends are likely to continue for several years. This suggests that your business is worth more now than it was just a couple of years ago.
The value of a business is in its earning power. As with anything else, when there are more buyers vying for a limited supply of anything, the price of what is being sought goes up. Right now, valuations are rising; that is, buyers are paying a bit more for a business’ earning power than they were a couple of years ago. Absent a calamitous decision in Moscow or Pyongyang to push a button in haste, we expect this trend to continue for several more years.
This provides business owners with both the opportunity to sell now and, if necessary, the time to get their business ready for a sale, a process that usually takes a couple of years if the owner wants to receive the highest value the business has the potential to provide.
Trying to sell when there are few buyers with the capital to buy is a rough challenge. But the current business and financial environment provides a splendid opportunity to cash out.
What’s Driving This Trend?
The current economic conditions in many parts of the world mean that business valuations are becoming more attractive. How long this situation will obtain is anybody’s guess but if you own a profitable business, there are more buyers, more money and more demand in the marketplace than at any time in the past 10 years.
- Strategic buyers are generally larger businesses in the same industry – or a related industry – that your business is in. Their strategy is to expand via acquisition. They want to enter a new market or add a complimentary product line or service to their current offerings. And, given the performance of economies around the world since late 2016, they’re flush with cash and hunting.
- Private equity firms or private equity groups (PEGs) are aggregators of investors that create dedicated pools of capital for the sole purpose of investing in and acquiring existing companies. PEGs generally have a defined time frame within which they must invest their funds which differs from strategic buyers who can amass a pile of cash and simply sit on it until they feel like pulling the trigger. Because PEGs “have” to invest the money they manage within a specified time period, the managers are aggressive when they find a business that meets their criteria. And by “aggressive” I mean in the price they’ll pay.
- “Private equity” funds also include “family offices”, essentially family money that is invested for the family by managers of the money. Among the largest examples of this type of buyer would be the Rockefeller family in the US and the Rothschilds in Western Europe. However, there are thousands of smaller “family offices” that do the same thing on a smaller scale. These groups are also flush with cash. Their investments have been generating handsome returns and they need to but that money to work.
- I can tell you from our own experience; more PEGs and “family offices” have contacted us in the past 12 months than have in the previous five years. They’ve got money to invest and they’re looking for deals. And, frankly, I wish we had more inventory to show them.
- Conventional lenders (banks) and non-conventional lenders, while not lending like the drunken sailors of the early 2000s, are opening their vaults to finance deals. If you have a profitable and sustainable business that attracts a qualified buyer, there is a ton on money sloshing around from San Francisco to Frankfurt to Tokyo. An attractive business in a properly structured deal should have zero problem finding funding. And think about the thousands of alternative lenders that have taken root over the past decade, all of which are clamoring to invest in quality businesses that are offered at reasonable terms.
- The preponderance of ink and newsprint on this topic has been given to the US market but other countries, recognizing the sclerosis of their economies, have been loosening regulations that make it hard to start businesses, hard to drive those businesses to profitability and hard to sell. A perfect example is France – France, of ALL places! The Macron administration has, among other helpful moves, taken steps to give both business owners and employees more freedom and fewer restrictions in an attempt to release whatever entrepreneurial spirits still exist in France. And as in any country, there will always be those that want to make a go of starting a business. With regulatory relief, it will be easier to do and the result will be an expanding economy, a condition that grows all properly run businesses. If you own one of them, it’s value is surely increasing with regulatory relief and as more well-capitalized buyers enter the market.
- This is a big one. The current US administration has caused an international “crisis” by lowering its corporate tax rate to 21% (from a developed country high of 35%) and developed countries around the world are now under pressure to lower theirs to stay competitive. All this is good on its face but what lower taxes do is increase profits – which, in turn, increases a business’ value. On top of that, lower taxes generally will spur an economy – resulting in higher sales. Why do you think stock markets worldwide have been powering to new heights? More profits, higher sales and lower taxes is a recipe for broad and sustained growth – and higher valuations for businesses coming to market.
How long any of these positive factors continues to be strong is anyone’s guess. But if you are considering a sale, the timing couldn’t be better.
There is more money looking for deals now than there has been in at least 10 years. There are more buyers of quality businesses than there are business to buy. If you are aiming at a sale in the next three to five years – especially of you are a so-called Baby Boomer with an eye to cashing out – you might consider doing so while so many factors that impact a business’ value are so positive.
Cool…But Where do I Start?
I did a recent post on how to get started on this process; essentially the process of putting together an “exit strategy”. Planning an exit strategy is not something that can be done over the weekend. It requires thought, input from various people (not least of whom would be your spouse, significant other and business partner(s)), serious consideration of timing and target valuation, and a vision of your future. It can seem like an overwhelming project. But if you want the most from your business and the most out of the rest of your life, it must be done. And I’d like to make the effort easier for you.
I’ve put together a five-step process on getting started and it’s free if you just tell me where to send it. In it you will see the first general steps that you need to take to start the exit-planning process – steps that will lead you to further steps.
In addition to those steps for getting you ready for a sale, we’ve got a couple of podcasts about getting your business ready for sale. They’re here. Scroll down to episodes 3 and 4.
Would some guidance or coaching help you get started or flesh out some thoughts? If so, first, order the Five Step Process above then let me know where you are in the process and what questions you have (see the email link at the bottom of this post.) I’m happy to help get you started.
If you have any questions, comments or feedback on this topic – or any topic related to business – I want to hear from you. Put them in the Comments box below. For example, what is your biggest concern about the thought or process of selling your business? Let me know. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a profitable week!