Market Update - Summer 2013
Is it time to sell?
Market Update Summer 2013
It’s a Seller’s Market!
After almost 5 years, business sales have taken a noticeable turn and we are now in a “Seller’s Market”. If you’ve thought about selling but felt that the weak economy was holding down valuations, it now may be the time to start the process. A business sale can take 1 to 2 years—so trying to time the market is difficult.
Here at Maine Business Brokers we are having our best year in 33 years and on track to sell over 50% of our listings—and that’s just in the first half of the year! We are seeing realistic buyers looking for healthy businesses with consistent cash flows and solid market positions.
Sales Metrics
Our own internal data points are all favorable for sellers:
- Sellers are realizing 93%+ of asking price. Good businesses are realizing almost full asking price, and often the difference can be made up through a negotiated earn-out on future performance.
- Average seller financing has dropped from 35% to 17-22%. Sellers don’t have to offer as much financing to get a deal done.
- Time to contract has decreased from 14 months to 8 months. We are putting businesses under contract quickly—buyers understand it’s a competitive market and they are moving quickly to execute LOI’s.
The “LOWS”
Market conditions are excellent for both buyers and sellers due to several historical "lows":
- Low Taxes. Taxes, specifically capital gains are still at historical lows. Buyers see less of a bite if they need to liquidate part of their portfolio to generate cash and sellers pay less at closing.
- Low Inflation. Inflation is also at a historical low and investors are seeking viable investment opportunities. Savings and money markets just don’t cut it and strong businesses can generate excellent ROI’s.
- Low Interest Rates. It’s never been cheaper to borrow money and qualified buyers understand this—it’s a good time to finance an acquisition.
What to do if you are a buyer.
If you are a buyer it may feel like the tables have turned on you: good businesses may receive multiple bids and valuations are steadily climbing higher. However, we are still not seeing the pro forma valuations of 2005-2007, borrowing is cheap and the economy is steadily gaining steam. You may not be buying on the bottom, but you are still buying on an upswing. Even better, most businesses that survived the last 5 years are smarter, more efficient, leaner and more profitable. If you are actively looking consider a few points:
- Be prepared. When you see the right opportunity you should be ready to move! If you have to leave a job, sell your home or cash out an investment you should understand the process to execute in a timely manner.
- Have your team in place. If you are using advisors, lawyers or accountants it may be helpful to meet with them first. They may give offer valuable insights on the process and you can be clear on your expectations of them to get a deal done—remember, they work for you!
- Understand basic due diligence. As long as the seller is providing current and historical financials for your review, you should be able to assess the business in a matter of weeks. Drawn out analysis could cost you a great opportunity.
- Be fair. Low ball offers may seem like a good starting point for an effective negotiation but it may cost you. Making a fair offer will speed the process up and generate goodwill with the seller—that may help later when working out the fine points of a P&S.
