For business owners, the new year is an ideal time to reflect on both long-term goals for your organization and potential exit strategies for themselves. For business owners contemplating selling, 2018 appears to be an ideal time. 2017 was a banner year for M&A and experts see no signs of this thriving market slowing down.
There are several reasons why companies with stable to increasing profits and predictable cash flows will continue to sell at the highest multiples we’ve seen since before the Great Recession:
- Interest rates, although slowly rising, remain near historic lows
- Strategic acquirers aggressively continue to seek expansion opportunities
- Private equity groups are sitting on more than half a trillion dollars that needs to be invested and continue to raise significant capital
The key question every business owner should be asking him or herself right now is this: “What am I waiting for before I initiate my exit plan?”
Since it generally takes 9-12 months to close a deal with an optimal buyer, waiting too long could prove problematic. Indecision could take you well into 2019 or beyond, causing you to miss what may be one of the strongest M&A years of the past couple decades.
Exit timing is not only impacted by external market trends, but also by your personal journey in life as well. This makes for a highly emotional decision, especially if the business has been in the family for multiple generations.
Regardless, if you are contemplating selling now or in the near future, we highly recommended that your next step be to obtain a Opinion of Value from an M&A Advisor that will provide you an educated, expert opinion of what your business would likely sell for in today’s marketplace. The Opinion of Value will help you understand if you’re on track to meet your goals, acting as a de facto report card. Other reasons to get a Opinion of Value include:
- Maximizing Value: Confirm that expected proceeds from the sale of your business will meet your retirement and legacy goals. Through the process of working with an M&A Advisor on a Opinion of Value, you will be able to quantify potential net proceeds, assess likely deal terms as well as understand the the key value drivers from a buyer’s point of view. If the expected proceeds do not meet your goals, it’s very likely the Advisor can recommend strategies to improve the valuation.
- Tracking the Market: Relative to real property, business valuations tend to fluctuate within a much larger range. As companies gain or lose customers and market dynamics change, the value of a business can increase or decrease dramatically. The Opinion of Value therefore can serve as a mechanism to track current valuation.
- Acquiring a Business: If you’re looking to potentially acquire a business, a Opinion of Value can serve as an independent, third-party opinion of fair market value.
- Partner Buy-Outs / Protecting Family Assets: The Opinion of Value can provide a realistic business value to support life insurance policies, succession planning or buy-sell agreements.
I’ll leave with you a cautionary tale of a business owner that could have saved herself millions of dollars by obtaining a Opinion of Value before concluding a buy-out of her partner. A couple years ago, I presented a Opinion of Value estimating the value of a company in the range of $16-$18 Million. In the midst of my presentation, the owner became quite upset and shared the fact that she had previously bought out her partner at a $26 Million valuation, which means she literally paid out millions more than may have been required. I can tell you with confidence that if she had a chance to do it over again, she’d surely seek a Opinion of Value up-front.
Beyond acting as an objective valuation scorecard, the Opinion of Value is a cost-effective tool that utilizes expert opinion from an M&A Advisor who will review your business’s special circumstances, normalize financials, analyze market trends, review privately held business comparative transactions, and provide you with real-life industry-insider experience.
As this strong M&A market rolls into 2018, we are here to help you make an informed decision. I’d love to have a confidential discussion about your business and share my thoughts.
Kevin Berson is licensed M&A Advisor with Kinected Consulting and is based in Sherman Oaks, CA. He specializes in helping business owners maximize outcomes in selling their businesses. He is also the founder of Kinected, a Management Consulting firm that advises companies with strategic planning, exit planning and merger and acquisition diligence. Kevin can be reached at kevin@kinected.com.
Kevin leads sell-side M&A engagements for businesses with $10M–$100M in revenue. He has advised on ~$1B in transactions and can be reached at kevin@kinected.com.