The views expressed in Guest Opinions represent only those of the author and are in no way endorsed by Richmond BizSense or any BizSense staff member.
A question I often hear from business owners: “Will 2009 be a good time to sell my business?” They are wondering whether the market for business acquisitions has suffered the same pummeling that the real estate market has experienced. Are things so bad that they shouldn’t even consider selling their business this year?
Unlike real estate, this isn’t a question you can answer statistically. It is hard to find timely data on the subject, and you can’t easily use “comparables” to determine trends in values. Instead you have to explore two fundamental questions about the marketplace: Is there strong demand among potential buyers of businesses, and is there capital available to pay for those acquisitions?
Let’s end the suspense right now: The rest of 2009 will be a good time to sell a business. There are at least six trends that support that conclusion, and I will list them for you later.
But before I do, I’m going to tell you why you really shouldn’t care about the conclusion or the six reasons that support it. More accurately, I want to tell you about two things that you should think about first – maximizing the return on your capital and meeting your personal needs.
In order to maximize the return on the capital you have invested in your business, you should sell only when you can employ the capital you receive for your business in a way that provides a higher return than you would receive if you kept it in the business. Gary LeClair, the chairman and CEO of one of the area’s leading law firms, is referring to this principle when he tells his clients that the best time to sell their business is “when you can sell high and buy low.”
LeClair says that simple phrase describes one of the most complex issues a business owner ever has to face. Some, but not all, of the tasks it involves include valuing your business in today’s market, projecting its future performance, assessing alternative investment strategies and opportunities, determining your risk tolerance and identifying current and future regulatory and tax issues.
The downturn perfect illustrates this principle. Today, you might get less for your business than you would have a year ago. But how would you have deployed your proceeds? A year ago, you probably would have put it in the stock market or in real estate. That doesn’t sound like such a good plan now.
Second, you need to consider personal and lifestyle concerns. If you have made a commitment to retire this year, and selling your business allows you to do so, it really doesn’t matter that you might be able to get 20 percent more if you wait a year to sell. On the other hand, if you love what you are doing and can’t wait to get to work each morning, it might not matter that 2009 is a good time to sell.
Now let’s look at those six reasons that the remainder of 2009 and early 2010 will be a good year to sell your business.
Larger companies are actively looking for strategic acquisitions to fuel their growth or leverage excess capacities. We are currently working on two deals in this arena, and both involve boomer business owners. (This may be the topic of a future column.)
Private equity groups and venture capital firms have been on the sidelines and are starting to look for good investments. While this trend is reported in the national business media, we are definitely seeing examples in Richmond.
Many boomers are looking for a second career, and laid-off senior executives are looking for businesses to buy. There is a regional “angel” investment group composed almost exclusively of ex-employees of a large local company. As a group, they are looking at venture investments, but at a recent meeting one attendee summed up the comments of several others by saying, “I’m bored. Find me a good business to buy.” That’s an exciting thing to hear no matter the market.
Buyers from outside the United States are actively seeking American businesses to buy.
Institutional buyers are reportedly lowering their size thresholds, putting them in the market for companies as small as $5 million in revenue.
The banks seem to be stabilizing and are beginning to look at solid deals again. One local buyer’s bank just tentatively approved a loan that, combined with some flexibility on the seller’s part, should lead to a deal. Two months ago, they probably wouldn’t have even had the conversation.
The trade publications are starting to report an uptick in deal volume, and that supports what we’re seeing here. Let’s hope it continues.
The views expressed in Guest Opinions represent only those of the author and are in no way endorsed by Richmond BizSense or any BizSense staff member.
A question I often hear from business owners: “Will 2009 be a good time to sell my business?” They are wondering whether the market for business acquisitions has suffered the same pummeling that the real estate market has experienced. Are things so bad that they shouldn’t even consider selling their business this year?
Unlike real estate, this isn’t a question you can answer statistically. It is hard to find timely data on the subject, and you can’t easily use “comparables” to determine trends in values. Instead you have to explore two fundamental questions about the marketplace: Is there strong demand among potential buyers of businesses, and is there capital available to pay for those acquisitions?
Let’s end the suspense right now: The rest of 2009 will be a good time to sell a business. There are at least six trends that support that conclusion, and I will list them for you later.
But before I do, I’m going to tell you why you really shouldn’t care about the conclusion or the six reasons that support it. More accurately, I want to tell you about two things that you should think about first – maximizing the return on your capital and meeting your personal needs.
In order to maximize the return on the capital you have invested in your business, you should sell only when you can employ the capital you receive for your business in a way that provides a higher return than you would receive if you kept it in the business. Gary LeClair, the chairman and CEO of one of the area’s leading law firms, is referring to this principle when he tells his clients that the best time to sell their business is “when you can sell high and buy low.”
LeClair says that simple phrase describes one of the most complex issues a business owner ever has to face. Some, but not all, of the tasks it involves include valuing your business in today’s market, projecting its future performance, assessing alternative investment strategies and opportunities, determining your risk tolerance and identifying current and future regulatory and tax issues.
The downturn perfect illustrates this principle. Today, you might get less for your business than you would have a year ago. But how would you have deployed your proceeds? A year ago, you probably would have put it in the stock market or in real estate. That doesn’t sound like such a good plan now.
Second, you need to consider personal and lifestyle concerns. If you have made a commitment to retire this year, and selling your business allows you to do so, it really doesn’t matter that you might be able to get 20 percent more if you wait a year to sell. On the other hand, if you love what you are doing and can’t wait to get to work each morning, it might not matter that 2009 is a good time to sell.
Now let’s look at those six reasons that the remainder of 2009 and early 2010 will be a good year to sell your business.
Larger companies are actively looking for strategic acquisitions to fuel their growth or leverage excess capacities. We are currently working on two deals in this arena, and both involve boomer business owners. (This may be the topic of a future column.)
Private equity groups and venture capital firms have been on the sidelines and are starting to look for good investments. While this trend is reported in the national business media, we are definitely seeing examples in Richmond.
Many boomers are looking for a second career, and laid-off senior executives are looking for businesses to buy. There is a regional “angel” investment group composed almost exclusively of ex-employees of a large local company. As a group, they are looking at venture investments, but at a recent meeting one attendee summed up the comments of several others by saying, “I’m bored. Find me a good business to buy.” That’s an exciting thing to hear no matter the market.
Buyers from outside the United States are actively seeking American businesses to buy.
Institutional buyers are reportedly lowering their size thresholds, putting them in the market for companies as small as $5 million in revenue.
The banks seem to be stabilizing and are beginning to look at solid deals again. One local buyer’s bank just tentatively approved a loan that, combined with some flexibility on the seller’s part, should lead to a deal. Two months ago, they probably wouldn’t have even had the conversation.
The trade publications are starting to report an uptick in deal volume, and that supports what we’re seeing here. Let’s hope it continues.
Very well-written article Stan. Too often in the marketplace we are hearing doom and gloom. However, we are seeing relatively strong deal flow for the strong companies. In the valuation profession we know recessions are extraordinary events. Therefore, periodic cash flow dips, in otherwise solidly performing companies are considered extraordinary events, and can largely be adjusted away.
Valuation multiples are no plummeting. And for most sell-side candidates it is actually a good time to sell.