Deciding how and when to retire is one of the toughest decisions in a business owner’s life. Selling to a strategic buyer, investment group or management team represents the culmination of years of hard work and investment. Going to market when the owner is personally prepared, and the business is ready, and market conditions are conducive offers the best opportunity to maximize results.
M&A activity in 2015 has been strong and 2016 market conditions look promising. Here’s why:
- Economy – Expectations are for a continuation of the recovery that began in 2009. Buyers make acquisitions and pay more when they can reliably forecast future earnings growth.
- Strong public stock market – Public companies with high valuations enjoy a lower cost of capital with which to make acquisitions, and many are on a buying spree.
- Abundant cash – Corporations have strong balance sheets and private equity groups have cash to deploy. They are competing for acquisitions.
- Debt financing – Debt is used in most acquisitions. Commercial banks are lending, debt ratios have returned to pre-recession levels, and even though the Fed may raise interest rates this month, rates are should remain attractive.
- Valuation multiples – Multiple studies and databases confirm that private company earnings multiples are at pre-recession levels.
- Moderate tax rates – Individual capital gains tax rates are still only 20% compared to 28-35% for most of the past 50 years. Government spending is at all-time highs and a recent budget deal removed the Federal debt limit. Sellers can expect higher taxes in the future.
Businesses offered for sale by Exit Strategies in 2015 received the best response we’ve seen in years, resulting in:
- more buyers looking at each deal,
- multiple offers per deal,
- more offers in the upper valuation range,
- higher percentage in cash,
- more seller-friendly terms,
- shorter time-on-market, and
- buyers that did not win these deals hounding us for more opportunities.
How long the good times will last is anyone’s guess. At 78 months, the current economic expansion is already longer than 29 of the 33 expansions in the U.S. economy since 1854.
Al Statz is CEO of Exit Strategies Group, Inc., which provides M&A brokerage and business valuation services to companies in the Western U.S. He can be reached at email@example.com or 707-778-2040.