We just met with a company that was considering a sale roughly 18 months ago. At that time they were looking at a price somewhere between $6 million and $7 million, but the deal didn’t go forward. We updated their estimate of value and feel confident that a sale in today’s market could generate $10 to $12 million or maybe more.
The M&A market is strong and multiples are climbing. On top of that, our client enjoyed stronger cash flows over the 18 months. Those two factors combined— a higher EBITDA and better multiples —meant a big jump in value.
These increases are repeating themselves across much of the industry. Unfortunately, too few business owners are asking for these estimates right now. That’s because the number one factor they consider when deciding to sell isn’t the sale price—it’s their age.
Many business owners figure they’ll sell when they hit a certain age, usually 60 or 65. They focus on that target alone and ignore considerations like business and industry performance, the financing environment, M&A trends, the tax climate and political situations.
If I could have my wish, I would ask every business owner to go through this exercise: Decide what kind of lifestyle you want after your business is sold and then figure out what you’d have to net out of a sale to make that happen. Talk with your spouse, meet with your financial planner and work the numbers.
Once you know that, the next logical step is to get an estimate of value from a credible source who understands the M&A marketplace. If the value meets or exceeds your lifestyle goals, then it’s time to take a serious look at selling all or part of your company.
If you can live the kind of life you want, it might be time to take your cards off the table and guarantee some financial security for you and your family. Selling your business doesn’t have to be about retiring (you don’t even have to leave right away or sell 100 percent). It should be about maximizing your return on years of hard work and diversify your risk.
Every time the M&A market peaks we hear business owners say, “I know I should probably sell, but I’m going to wait just one or two more years. I’m going to build more equity, pay down a bit more debt.”
Unfortunately the people who said that in 2006 and 2007 are very tired right now. They’ve had to hold on for the last five years, longer than they wanted to, and these weren’t fun years. Because, when the bubble bursts values are affected overnight.
Figure out what your goal is and know when you’ve met it. Don’t worry about what you’ll do with your so-called “retirement.” In my experience, entrepreneurs don’t have any problem finding that next project to keep them engaged.
Scott Bushkie is President of Cornerstone Business Services, a low-to-middle-market M&A firm. Reach him at 920-436-9890 or [email protected]