“Timing” always plays a role in transactions…always!
The larger the dollar amount pursued the more complex is the transaction and the more important timing the market becomes.
Many business owners address a potential sale of their business based on a personal time line. Some examples are:
Where a matching of personal goals and the sale of a business works it is a beautiful thing. The challenge question is “what makes for a successful sale?” If selling at the time of one of the above examples is “success” then great! If it means that “success” is based on a monetary return, then the below list of timing considerations is hugely important.
Please read through the timing considerations listed below. They are based on Monetary Returns For Finding The Best Timing. ACT Capital Advisors recognize that a 20% loss in company value may easily occur if timing is poor. Working through the following considerations with your ACT Managing Director may demonstrate how timing can IMPACT the value of your lifetime of work.
When your company is growing. This speaks to how the company can be priced based on future sales in addition to current success.
When your company has experienced record profits. Often a multiple of earnings (EBITDA) is used as a key aspect of the amount a prospective buyer will pay. That multiple will look at about a 3-year period.
When the economy is bullish. The Buyer’s confidence in the future is the time when “best” prices for a business may be achievable.
When your company is part of a growing industry. Most businesses that are growing need to identify how to accomplish more. Purchasing another business for their employees and customers is a tried and true strategy to capture industry growth opportunity.
When the economic marketplace has unique opportunities to use Capital Gains tax. “Opportunity Zones” have been created to attract investors to depressed areas with significant tax advantages available to them when investing funds from Capital Gains. https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions
When your company has a “hot” marketplace product or service that predicts a rapid return for the buyer.
When your company has a strategic advantage in the industry you serve. It is easy to overlook that very thing that has made a business successful. Perhaps a patent (is it expiring?), a preferred logistical location, a best in the industry management team; any and all may be the thing a strategic buyer wants to have.
When your company is stable, has a solid footing and turns a tidy profit each quarter and each year. A family trust may well wish to make an investment to enhance their long-term returns
When partnerships or key staff experience conflict and long-term solutions are not apparent for keeping talent in place. Selling before there is loss of talented personnel is VERY IMPORTANT. Buyers give key reasons* for poor purchase outcomes. They include ability to integrate with a new company and a lack of staff talent. *https://www2.deloitte.com/content/dam/Deloitte/us/Documents/mergers-acqisitions/us-mergers-acquisitions-trends-2019-report.pdf
When capital is inexpensive. Buyer dollars go further if the cost of interest is lower. Prices can go higher and still meet buyer desired rates of return on business purchases made.
When capital is readily available. In 2018 a near record high dollar amount of transactions through Mergers and Acquisitions took place.
When experts predict high volumes of M &A activity. This means investors and businesses are poised to make purchases. 2019 is expected to be a very strong. 69% of corporate respondents report more cash reserves. #1 primary intended use of that cash is to fund M&A deals according to Deloitte’s State of the Deal M &A Trends in 2019 report.
