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:

Economic Outlook
• 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

Stock Market
• 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:

Click Here to Request Reports

Sincerely,
Randy Rua CEPA, CBA, MBA, CVB

When contemplating a business sale, focusing on key drivers of value can produce more favorable terms and a higher price. Those include:

• Growth: buyers rarely want to invest in stagnant or declining businesses.
• Earnings: An earnings multiple is almost always the key determinant of value. Selling more and spending less are ultimately the drivers of a higher sale price.
• Technology: The technology your business owns or creates can offer a lot of value, particularly if it’s patented. Speak with an IP attorney to explore whether a patent is an option.
• Other intangible measures: A good partner channel for sales, a hard-to-access market segment, or a unique product can all increase your value. Strategic buyers are especially likely to highly value these factors.

So what if you’ve already optimized these value drivers? Seven simple strategies can help you get the best price for your business:

Timing
Carefully time the sale of your business. You want all key value drivers on your side, and heading upward. Consider also the larger market, and your investors’ desire for liquidity. Selling in a low interest rate market can lead to higher values for financial buyers, while a high stock market often fetches a higher price from strategic buyers. When the two forces combine, you may get the highest possible price of all.

Don’t DIY
Selling a business is a complicated undertaking, and you’ll likely only do it once. A skilled advisor adds significant value, so choose your advisor wisely. Don’t try to manage the many moving parts of a deal by yourself.

Consider a Different Lawyer
Your general counsel may be great at what they do. M&A demands a completely different skill set. Don’t default to a lawyer you know, or the general counsel you employ. Hire a specialist. The other side will have a skilled team of experts. Shouldn’t you?

Plan for Due Diligence
Buyers won’t go in blind. They want to verify what you say. Due diligence can be a long and intensive process. Unpleasant surprises can destroy a deal, and may greatly reduce the value of your business. Preparing now can help you address any issues with your business. Having your paperwork ready now will also shorten the timeline from due diligence to a final sale.

Set Realistic Expectations
You might have big dreams for your business or its sale. But sky-high expectations can come back to haunt you. Set expectations that are realistic and match the demand of the market. A good advisor can assist with comparing a business valuation with the current state of the market. This can ultimately increase the value of your business, and establish trust.

Know the Value of Trust
Your rapport with the buyer may matter more than any other factor. No matter how clear your legal documents are, it’s still possible for either side to harm the other. A good working relationship with someone you like and trust motivates both parties to behave fairly. A buyer may be more willing to offer favorable terms when they trust and like you.

Relax
Some things are beyond your control. Deals are filled with highs and lows. Control your emotions, or they will dictate your decisions. Plan what you can. Ask for help from experts. And then get back to the business of running your business. A smooth-running enterprise is always and everywhere the best driver of value. So don’t allow deal preparation to steal your focus.