Don’t Miss the Market:
How to Know When it is Time to Sell!
I remember a conversation I had with John whose business was doing extremely well. He was enjoying life and thought he was in a place that he could sell his business whenever he wanted, which would give him the financial resources to enjoy retirement. That was over 10 years ago, and John did not know his business value at that time was based on peak market conditions. John was in a small window of opportunity that could close at any time without much warning. He signed a large loan to expand the business, not knowing he would soon see his business and personal investments lose half of their value virtually overnight. Luckily, 10 years later John’s personal and business situation is almost back to where it was. However, now in his 70’s and with health issues, he cannot recapture the time he has lost waiting for peak market conditions to return.
The data was there but neither John nor I knew how to read it. Today we monitor important market conditions by tracking information such as: valuation multiples, interest rates, capital available for banks to lend, ratio of buyers to sellers and overall economic conditions.
We track this market data through subscriptions to multiple databases, and our team consolidates information from a variety of other sources. We also track the M&A market sectors specific to our clients. Understanding how to read this data is the key to knowing how to tell when there is a peak market and what type of value you could get for your business.
A summary of the data we use is described below starting at a macro picture of the market down to how the market is directly affecting the value of your specific business. This is accomplished by looking at the following:
• Key Economic Variables (actual and forecasted) shows the trends and predictions for real GDP, industrial production, consumer spending, consumer price inflation and business investment
• Commercial Rates Graph shows the changes and trends of commercial interest rates
• Commercial Loan Volume Graph shows the amount and trends of lending
• S&P Index Graph shows the trend and volatility of the large public stock market
• S&P EV/EBITDA Graph shows the valuation of the large public stock market
• Russell 2000 Index Graph shows the trend and volatility of the small public stock market
• Russell 2000 EV/EBITDA Graph shows the valuation of the small public stock market
Middle Market Environment (companies valued between $1 Million and $500 Million)
• US Mergers & Acquisitions Market Index provides the total number of transactions completed in the USA
• US Middle Market Monitor provides the average EBITDA multiple for transactions completed in the Middle Market
• US Private Equity Report provides the number of and EBITDA multiples for transactions completed by private equity groups
• US Strategic Buyer Report provides the number of and EBITDA multiples for transactions completed by corporate buyers acquiring other companies
• US Sector Activity provides the number of transactions by sector to see what areas of the economy have the most M&A activity
SME M&A Environment (companies with less than 250 employees and less than $50 Million in Revenue)
• Multiples by Size Graph indicates the valuation trend of companies of a given revenue size
• Multiples by Sector Graph indicates the valuation trend of companies in a given industry
NuVescor’s Proprietary Report: Specific Company M&A Environment (a specific proprietary report created just for your business based on specific buyers active in your industry)
• Multiples: private equity, strategic companies and individuals (if appropriate) are surveyed to obtain current EBITDA Multiples these buyers are willing to pay based on the characteristics of the unique business
• Deal Structure: the amount of cash versus seller financing or earn out these buyers are willing to pay
If you would like to receive a copy of the reports referenced above, please click below:
Randy Rua CEPA, CBA, MBA, CVB