“When is the best time for me to sell my company? How can I know I will get top dollar for my business?”
We get these questions from attendees at our exit planning conferences all the time.
The reality is that the best time to sell, the timing that will get you an optimal deal and structure for your company, are when two factors are occurring simultaneously:
What is even more unfortunate is that most business owners wait until the business is doing poorly to decide to exit and then they try to convince buyers that the profitability and growth of several years ago will miraculously return next year.
When are buyers generally active? Professional buyers, the kind you want to attract to your company, acquire businesses based on what the company will be doing in the future, not the past. This is an important concept that most business owners are not aware of. Although your history is important to explain, it is far more important from a buyer’s perspective to have a documented future to invest in.
So buyers are generally much more active when the economy is growing and the economic outlook in general is bright. Conversely, since buyers despise risk, when the economic outlook is not positive and when it is unclear to them where the business environment is heading, they tend to be very passive and slow to acquire.
We have seen this cycle repeated for years and years. You can clearly see it in the following chart that outlines historic M&A activity:
The data above reveals exactly what we mentioned earlier: Buyers become less active when confidence in the economy fades. Notice the declines in 2001-2003 (recession), 2008-2009 (steep recession), and 2016 (election uncertainty).
What is very clear from this chart is that when buyers are uncertain, they are less active. When they are confident in the near future of the economy, they are active investors.
Last year was clearly an anomaly since we have been in a seller’s market since 2014. In fact, most analysts expect 2017 to be a near-record-breaking year in terms of deal activity given the tremendous confidence in the economy, tax policy, and the reduction in overall federal regulations.
And we are hearing the same from business owners attending our conferences. Compared to five years ago, far more attendees are experiencing growth in revenue and profits than ever before. This is great news!
However, what does it mean? Sadly, far too many owners are now trying to “time” the market, to sell when it is at its peak. This is a great idea if you can read tea leaves or predict the future. Since most can’t, it is far wiser to realize that we are now facing the convergence of the factors mentioned above along with several others:
Each of these is playing a part in making this a seller’s market. However, the last one, interest rates, is typically an area that most business owners don’t know impacts M&A deals. You see, nearly all transactions have some component of financing attached to them. Even very small deals are rarely all cash funded by the buyer. Most have a lender involved and usually it is the lender who is the most difficult party to please in the equation.
So, getting back to the original question:
The simple answer is: Now!
Or at least, at a minimum, now’s the time to begin your exit planning process. Rarely does a business owner complete a transaction instantly after deciding that now is the time; usually there are some steps involved in creating a “buyer ready” business. Starting your exit program is usually best begun months or even years before your exit timing goals.
Interested in learning more? Then I highly recommend that you attend one of our exit planning meetings soon in your area. Use the following links to learn more:
No matter what you end up doing with your company, planning is the key. For many business owners, nearly their entire net worth is tied up in one highly illiquid investment. Planning to monetize the business could have a bigger impact on your financial legacy than any other decision you will make in your life.
By Carl Doerksen, Director of Corporate Development at Generational Equity.
© 2017 Generational Equity, LLC All Rights Reserved
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
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