With a strong U.S. economy and a presidential election on the horizon, 2019 will be a pivotal year for selling your business. According to Deloitte’s annual M&A trends survey, a record number of respondents were confident they would receive a favorable offer if they sold today, but the decision to sell is complicated and should not be taken lightly.
Selling your business is typically contingent on a variety of factors, including, but not limited to, the favorability of the overall economy, your company’s financial performance and if you are emotionally ready to begin planning your exit. Rarely will all the factors align at once, but in 2019 the market for selling is ideal.
If you’re considering selling your company, you should begin the process sooner rather than later. Depending on the variables specific to your transaction, it can take 6 to 9 months or longer to complete the sale. If you wait too long, you could miss your window of opportunity to take advantage of optimal terms.
1. Is NOW the time to take action?
While the current economy remains strong, the favorable conditions won’t last forever. As we approach 2020, it’s anticipated that the growth of the GDP will slow and the U.S. economy could stall.
The upcoming Presidential election also brings up a variety of questions that could impact future transactions: What will the tax policy be in the future? Will deregulation from the Trump administration be unwound? Are investors going to be less aggressive with their capital?
Due to the amount of activity in the debt capital markets, there are a variety of loan structures and terms available to middle market companies. Deloitte’s 2019 M&A trends survey reported that 69% of respondents have more cash on their balance sheet than they did two years ago, and their primary intent is to fund M&A opportunities with that cash. However, M&A intent, as well as the availability of capital, could change if problems emerge in the financial condition of middle market companies.
The recently published Financial Stability Report provided two important data points indicating the potential near-term reversal of investor sentiment:
- Ending issuance grew by 20% in 2019
- Middle market companies have become dangerously over-leveraged
No one truly knows when a tipping point might be reached, so it never hurts to be prepared to act.
2. What is your business worth?
Take the time to understand the items that motivate a potential buyer in choosing your business over others in a crowded market, such as upgrading equipment, removing obsolete inventory and even your ability to recruit and retain a skilled workforce in this environment of record-low unemployment. According to a new report from the International Business Brokers Association (IBBA), M&A Source and the Pepperdine Private Capital Market Project, 28 percent of business advisors say the talent shortage is hurting their ability to sell their clients’ companies.
3. Are your financials prepared for a sale process?
Even though the economy is favorable, business owners shouldn’t rush to sell their businesses before making sure your documentation (balance sheet, income statement, cash flow statement, tax returns, etc.) is in order. Potential buyers will take an in-depth look at your operations and financials, specifically covering the last 36 months.
With such a large number of potential buyers seeking high-quality businesses, buyers are doing their due diligence and scrutinizing the long-term profitability of every opportunity. While revenue declines may not be significant, it’s important to have a good explanation for any variances.
Regardless of which type of buyer you pursue, now is a great time to plan your exit and prepare your company for a sale. All indicators point to 2019 being one of the best in recent history to sell your business. With banks eager to loan money, buyers can likely obtain the loans they need at optimal rates.
At ButcherJoseph & Co., we recognize the increasing need to educate current and prospective clients on opportunities within the market and the potential implications to their businesses and personal wealth. Let us help you perform a valuation of your business to find out what your business is worth today and what types of buyers fit your objectives.