It has been over a decade since the mergers and acquisitions sector has been in as favorable of a position as it is now. Factors that typically drive deals, like availability of capital and industry performance, are all looking better for private business owners than they have been since the mid-2000s.
Business analysts are reporting that the median sale price for Q1 2014 remains strong, at figures approximately $25,000 higher than the median sale price experienced during the 2010 to 2012 period, further evidence of a strong business climate.
If you have been thinking about a merger or sale of your business, here are five reasons this year could be the time to sell:
1.Better valuations. Business owners are seeing better valuations than ever before. The economic recovery has brought more buyers to the table than ever, while there remains a lack of sellers. Take advantage of this situation because it won’t last. When the tide turns, and it will, you won’t be able to get the premium price for your business that you can demand today. Deal volume was down in 2013 compared to 2012, but deal value and multiples were both up. Take advantage of this continuing trend in 2014, but be aware it will level out.
2. More money available. In addition to better valuations, the current business climate shows more money on the sidelines than ever before. That goes for both corporations and institutional investors. Again, such a scenario means it’s a seller’s market—at least for now. If you are considering a sale or merger, you’ll find both corporations and private equity groups are on the lookout for well-run businesses. Corporations typically prefer growth investments like acquisitions over paying out dividends.
You’ll also find private equity is available at optimal levels. Investors are looking for high returns and those in charge of making the investments need to do so or risk losing the account.
No matter how you slice it, lots of money means a favorable market for well-run companies.
3. Stay ahead of the curve. The two factors above clearly illustrate that it’s a seller’s market, but that’s not going to last indefinitely. Most business analysts are saying they’ve never seen a better market for sellers, but they also expect that by 2020, the pendulum will have swung back and it will be a buyer’s market again, thanks to the droves of baby boomers ready to retire.
As always, time mitigates against you.
4. Business is cyclical, so sell high. If yours is one of many industries that is boasting upward numbers, it’s a good time to sell. Wait too long and it will be too late. The old adage what comes up, must come down, also applies to business. A rejuvenated manufacturing sector, improve home values, and declining unemployment are all signs of an improved economy, but don’t get too caught up in the game of trying to guess the peak of the cycle. If you do, you could get in too late. Better to sell when there is still a lot of buyer interest then get too greedy and miss an opportunity.
5. The clock is ticking. It’s true, you aren’t getting any younger. And reality is, most privately-held business owners today are baby boomers, ready to explore the next phase of their life. Yes, the prospect of selling a business you’ve nurtured from its infancy brings with it a wide range of emotions, from excitement to anxiety to fear. If you are like a lot of business owners, you are probably looking at the one time in your life you will be going through the process of selling your company. In most cases, the sale comes about because the owner is ready to retire.
But don’t underestimate the time consumed in completely removing yourself from the picture. Deals can take up to a year to complete. You may be asked to make a three to five year commitment as manager in order to push the deal through. Be prepared and don’t wait till the exact moment when you need to get out the door before putting wheels in motion.