Are We At the Peak of the Sellers’ Market?

The past few years have been an excellent time for business owners to sell and this should continue for at least another year: interest rates are low, private equity firms and strategic buyers have cash to invest and are hungry for acquisitions that will be accretive to their businesses, and there is a lot of interest in US companies from foreign buyers that are willing to pay a higher price to gain access to the US market. Companies that had done the proper preparation, and were ready for sale these past few years have been rewarded with high multiplies.

Are we at the peak of the sellers’ market? The “good times” for selling a mid-market company cannot last forever, but we believe 2016 will continue to be strong. For business owners thinking about an exit strategy, the next 12-18 months may be the best time to take advantage of current market conditions and prepare their companies for a transaction.  We advise owners to “run their business like they will own it forever, but, be prepared to sell it tomorrow.”

As a seller, there are also numerous options to take cash off the table while retaining full or partial control. The partial sale is an ideal option. This allows the business owner to sell a portion of the company, get some cash out of the business, reduce personal risk, yet still be able to help grow and guide the company.  We are seeing both private equity and strategic buyers welcoming the opportunity to invest in an established company providing the resources it needs for growth and maintaining the leadership to provide the vision and operational expertise. Other options include “recaps” which also allows cash off the table while retaining full or partial control.

Preparing for Sale

Buyers in general have a set of value drivers for evaluating a perspective acquisition. For a business owner getting ready to sell their company, a key point is preparation. In order for a business owner to earn the maximum value from the sale of their company, they need to ensure that value driver areas of the company are functioning at the criteria level deemed by the buyer.

There are great opportunities to realize value in today’s market as either a buyer or as a seller. Most sellers do not understand how to run a sales process and identify the “unusual” buyers who will pay a premium price for a business.  Most buyers don’t understand how to unearth businesses on a pre-emptive basis. Find a good advisor who specializes in your size business and take advantage of their advice and experience.

In addition, whether it is to buy or sell a company owners need to do their own due diligence and evaluate the transaction, looking closely at nine critical value drivers to evaluate how “transaction ready” the business is. This helps determine what it is worth to the other side. The factors are:

1. Sales trends
2. Profitability recasting
3. Balance sheet strength
4. Product differentiation
5. Depth of management
6. Customer concentrations
7. Supplier dependency
8. Sustainable-adaptable model
9. Deal killers

How strong a company is in these nine areas will directly determine the value to both the buyer and seller. For sellers, it gives them an opportunity to see where the weaknesses are and do what it takes to strengthen them prior to the sale. For buyers, it lets them also see the weaknesses to determine if they want to make an investment. For both, evaluating these areas will give them leverage at the negotiating table.