Your intuition, along with everyone around you, may tell you that this is not a good time to sell a business. That may or may not be right. The simple economic law of supply and demand still applies, and there is demand right now. Private equity has massive amounts of capital (called “overhang” in the industry) that must be put to work. In addition, many public and private companies are looking to shore up their performance by acquisition.
The supply side of the equation, however, is lacking. Buyers are, have been, and will always be risk-averse. Thus they are clamoring for a relatively select group of businesses that continue to perform in this market. Does your company qualify?
- Over $500,000 in earnings — It helps greatly to have private equity as well as strategic buyers bidding for your business. PE groups start to become interested at around $500K in earnings, although they really start to become active at $1 million. In addition, if you are below $500K in earnings then strategic buyers start to become rare and more individual buyers are active. Unfortunately, the arena for smaller deals with individual buyers is still not very healthy.
- Earnings stable — They don’t have to be growing, but earnings need to be relatively stable. We’ve tried a few times to sell companies with volatile earnings in this economy and it just doesn’t work. Buyers say they are looking for good deals, but uncertain performance scares them too much.
If your business falls into this select group, now is a good time to sell. You’ll have lots of attention. In fact, if you wait until the economy picks up you’ll be competing with many more sellers as the expected bulge of baby boomers sell their businesses.
If you don’t fall into this group, hang in there. It will turn around. Normally buyers want to see a multi-year history of stable earnings, but I believe with the pent up demand what they will accept is reasonable proof that you are on the way to recovery. In other words, if it is generally accepted that the economy is recovering (we are almost to that point) and you have six months to a year of new growth on the books, buyers will again be interested in your business.
Want to learn more? I’ve organized and categorized my blog posts into a free online guide on how to sell a business: www.sellbusinessguide.com