There have been exceptions but clearly, supply has been way below demand. While supply is increasing, today and for the predictable future we expect the market to remain a “Sellers’ Market”.
A question we get asked often when speaking with owners is, “When is the right time to sell my business?” There is a great deal of emotion & decision making that goes into selling a company. There are countless reasons to sell or hold a company; burnout, new opportunities, negative industry changes, lifestyle change, but at the end of the day, all decisions about making an exit are most heavily influenced by the emotions of the owners.
Playing the entrepreneurial game can be exhausting. Sometimes, after business owners play it long enough, they simply decide to take their lives in a new direction, one that doesn’t include their business.
Logically, the right time to sell a company is when multiple buyers are interested and the highest price can be commanded. The “perfect storm “occurs usually when these elements fall into place:
- A solid history of financial growth in the company over the last few years, both in revenues and earnings.
- Strong indications that revenues and earnings will continue to increase in future years.
- Market conditions are such that the investment community believes there is a good upside ahead for the industry segment your company serves.
When these conditions are met, the owners of the business are in the envious position of being able to find a strong buyer mix and command a premium price for their company.
So, why not now? Picking a direction in this M&A environment seems like an easy choice, right? So why might a potential seller disregard this logic? Usually, the answer is …. they want the upside for themselves. They see the business as growing and assume it will continue to do so, resulting in increased value. This may be true, but there is always the risk that the favorable conditions of today will not exist tomorrow.
While we aren’t soothsayers and have no real knowledge of how long this economy will hold, we do know, historically, a downward slide is coming. When it does, we aren’t sure of the time likely to be required to recoup and build back. Are you, your family, and your partners emotionally prepared to wait another 5-10 years for the right time to sell? This question requires the owner to take a hard look at what would happen if a downturn occurred in their business, requiring years to reset and recoup value lost.
Experience, they say, is the best teacher. Having worked as sellers of companies for nearly three decades, we have seen all too many situations where owners considered sale, but then decided to wait just another year or two before making their move. In cases where that occurs just before an economic downturn, the cost can be significant. If earnings drop and hold down for the 12-24-month period following, new benchmarks are set for buyer pricing. Most recent earnings are, to buyers, always the clear measuring stick for their establishment of pricing.
However, for the seller who knows they would like to make a move soon, 2019 looks like a good time to potentially maximize outcome!