Now that the economic recovery is underway, a significant number of business owners who would normally have sold their companies but waited during the recession plan to step back into the marketplace.
These businesses will find a crowded market as the business sale cycle returns to pre-recession levels. Joining them will be a growing number of retiring baby boomers, many of whom are business owners who will need to sell their companies to fund their retirements.
This increase in activity has consequences for buyers and sellers. First, the low level of businesses for sale in recent years meant buyers accumulated money – estimated at $2 trillion. Normally, more to spend would be good news for sellers, but it also means buyers can be pickier about what they acquire and the price offered.
Not only do buyers have more to spend, but they can also pay less for companies now than they did a few years ago. Even though the number of companies sold in 2011 returned to near record levels, the amount buyers spent for acquisitions has dropped $700 billion since 2007. As a result, since buyers now spend less per transaction, companies planning to sell must perform optimally to receive the full potential value.
Buyers look at several value drivers when deciding to acquire a company. A strong financial and operational performance is a given. But they also consider whether there is a comprehensive corporate strategy, functional organizational structure, developed sales and marketing strategy, product development pipeline and modern technology infrastructure. If any area lags compared to other potential investment opportunities, buyers will not offer the full value sellers are seeking.
Over the next decade, roughly 100,000 businesses will sell for an estimated $10 trillion. Business owners who wait to prepare their companies for sale risk receiving a fraction of their company’s potential value. Sellers must truthfully assess how a buyer would rate their company’s value drivers. As a business owner, can you look yourself in the mirror and honestly answer, “Does my company rank as one of the best available to acquire?”
That’s why owners can’t afford to wait to prepare their companies for sale. With proper preparation and guidance from advisors, sellers can position themselves to compete for the best opportunities available and earn top value.