As seen in the Cincinnati Business Courier.
If you were a peach farmer, would you rather harvest and sell your fruit at the same time as all the other peach farmers in the country, or (assuming you could control this) when peaches are scarcer? Hopefully you’d prefer to sell in a scarce market, where you could be more of a price-setter than a price-taker.
The same idea, the timing of supply and demand, applies to selling a business. Selling when the market is oversaturated with buyers who are flush with capital is better than the alternative. If you are considering selling your business, you may have heard that “this is a seller’s market” or “multiples are high right now.” Both statements are true, but unfortunately for sellers, these kinds of market conditions don’t last forever.
A few gating factors are driving ideal timing.
- Strategic buyers — Those who participate in your industry a related one — are generally flush with capital right now. Business performance has been strong, irrational spending has been tempered on the heels of the Great Recession, and many owners entering retirement age want to make one last “push” for growth before selling themselves.
- Private equity or family office buyers — Those with dedicated pools of capital for investing and acquiring companies — have been “elbowed” away from the proverbial M&A negotiation table by strategic buyers who have been able to pay stiff premiums due to the likely realization of post-closing synergies and rationalizations. Unlike strategic buyers, who can stockpile cash and use it essentially whenever they see fit, most private equity buyers have a finite window in which to invest their funds. Increased strategic competition combined with record funds having been raised post-crisis has only heightened the urgency and activity among these buyers.
- Credit markets are wide open for good deals right now. Banks haven’t returned to pre-crisis habits, but if you have a high-quality deal that is structured correctly, it can and will be funded if it is taken to the right organization. And banks aren’t the only ones funding debt deals these days; thousands of alternative lenders are also clamoring to invest in high-quality deals.
- The political and legislative picture is finally taking shape. Regardless of whether you agree with the current climate and recent legislation, one thing is true, there is now certainty. When certainty becomes more prevalent, so does buyer confidence.
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. I always tell potential sellers I spend time with, “Your businesses’ earnings and assets aren’t worth today what they will be tomorrow.” If you are aiming at a sale in the next three to five years, you might as well try to time this before your peaches spoil.
