From the Duffy & Sweeney blog | By Michael Sweeney
Among the many personal and often emotional issues successful business owners face when contemplating a liquidity event is whether or not it’s the right time “in the market” to sell their business.
Business owners must look to broader external market indicators not directly related to, or even in sync with, their own industry, market cycle or growth curve. Generally speaking, many market factors have contributed to a seller’s market since 2009. These factors led to two of the best years for middle market mergers and acquisitions (defined as deals among companies with annual revenue between $5 million and $2 billion) on record in the U.S. in 2014 and 2015.
Despite a break in action at the very end of 2015 and the beginning of 2016, the outlook for middle market mergers and acquisitions looks strong. In our view, the same indicators as last year exist and will propel deal making in 2016 and 2017 in the middle market.
They include:cash raised by private equity firms in 2012-2015 that must be invested; cash accumulated on balance sheets of large strategic buyers; more aggressive lending terms from bank and non-bank lenders relative to 2008-2010; and competition for strong companies, earnings and brands.
Strategic buyers should play an even bigger role due to their focus on top line growth and synergies, as compared to private equity buyers looking for pure financial returns. Acquisitions are playing an increasingly key role in corporate growth strategies and leaders will use acquisitions to buy access to new innovation, talent, technology, and revenue.
Underlying financing conditions in the U.S. remain strong for mid-market deal flow despite uncertainty surrounding the Federal Reserve (the Fed) beginning to raise interest rates, volatile oil prices, and increased concern over uneven global growth. Moreover, if and when the Fed does act, it is unlikely to be a strong deterrent to deals because rates are already at historical lows. However, this uncertainty and the potential future volatility in the global economy is also influencing many sellers to act sooner rather than later. Many business owners who sat on the sidelines during the buyer’s market following the Lehman Bros. crash in September 2008 and the Great Recession are eager to test the markets now.
If you’re considering selling your business, the “window” is open.
For a more defined analysis of specific industry situations, please contact Mike Sweeney, Jean Harrington or Josh Celeste.
From the Duffy & Sweeney blog: By Michael Sweeney
You have built a great business, but have you ever sold a great business? Successful entrepreneurs and business owners often grow their businesses into attractive acquisition prospects. More often than not, these same business owners have limited experience selling a business. If you are considering selling your company and want to maximize its value, there are many critical factors to consider. The first two questions that you should answer in consultation with your advisors involve timing.
Is it the right time to sell from a market perspective?There are many external factors which will impact the timing and success of your potential sale. These factors include the performance of the general economy and the position of your company in your industry marketplace. Generally speaking, throughout the last few years, it has been a seller’s market. Private equity sponsors have near record amounts of capital to invest. Financial institutions and non-bank lenders have capital that needs to earn returns. Debt and equity for good deals are competitively priced and widely available. Strategic buyers also have record cash on their balance sheets and are looking to buy market share rather than pay cash dividends. In 2009 and 2010, by contrast, capital was scarce and deal flow slowed substantially. Finding the right “window” is very important in maximizing the value of your business.
Is this the right time for you and your company?While it might be a good external market, the timing might not be right for you, your family or the company. Internal considerations include your growth and capital needs for the next five years, the strength of your sales and earnings, and the quality of your management team.There are many psychological and emotional issues to consider with the sale of the business. We encourage clients to think about health, family and emotional issues when conversations first arise around selling a family business. Your retirement plan, family succession objectives, philanthropic endeavors, and tax planning should be carefully considered when deciding to sell. You must also determine whether the proceeds of a potential sale will be enough to maintain your current lifestyle.
If the market “window” is open wide at the right time for you and your company, the sale process should generate superior results. To learn more, contact Mike Sweeney at firstname.lastname@example.org.
Note: It’s important to seek expert legal, tax and financial advice and discuss these issues with your estate planner and financial advisor when contemplating these issues. Our goal is to give you the best legal advice, while helping you achieve your personal and business objectives with the least financial and emotional costs.