When is the Best Time to Sell a Company?

By Generational Equity


“When is the best time for me to sell my company? How can I know I will get top dollar for my business?”

We get these questions from attendees at our exit planning conferences all the time.

The reality is that the best time to sell, the timing that will get you an optimal deal and structure for your company, are when two factors are occurring simultaneously:

  1. Your business is doing well and making money
  2. When buyers are active

Unfortunately, these two conditions do not occur at the same time very often.

What is even more unfortunate is that most business owners wait until the business is doing poorly to decide to exit and then they try to convince buyers that the profitability and growth of several years ago will miraculously return next year.

When are buyers generally active? Professional buyers, the kind you want to attract to your company, acquire businesses based on what the company will be doing in the future, not the past. This is an important concept that most business owners are not aware of. Although your history is important to explain, it is far more important from a buyer’s perspective to have a documented future to invest in.

So buyers are generally much more active when the economy is growing and the economic outlook in general is bright. Conversely, since buyers despise risk, when the economic outlook is not positive and when it is unclear to them where the business environment is heading, they tend to be very passive and slow to acquire.

We have seen this cycle repeated for years and years. You can clearly see it in the following chart that outlines historic M&A activity:

Number of Announced Business M&A Transactions in the US

Source: Dealogic

The data above reveals exactly what we mentioned earlier: Buyers become less active when confidence in the economy fades. Notice the declines in 2001-2003 (recession), 2008-2009 (steep recession), and 2016 (election uncertainty).

What is very clear from this chart is that when buyers are uncertain, they are less active. When they are confident in the near future of the economy, they are active investors.

Last year was clearly an anomaly since we have been in a seller’s market since 2014. In fact, most analysts expect 2017 to be a near-record-breaking year in terms of deal activity given the tremendous confidence in the economy, tax policy, and the reduction in overall federal regulations.

And we are hearing the same from business owners attending our conferences. Compared to five years ago, far more attendees are experiencing growth in revenue and profits than ever before. This is great news!

However, what does it mean? Sadly, far too many owners are now trying to “time” the market, to sell when it is at its peak. This is a great idea if you can read tea leaves or predict the future. Since most can’t, it is far wiser to realize that we are now facing the convergence of the factors mentioned above along with several others:

  • Significant committed capital that needs to be invested by private equity firms
  • Record cash on corporate balance sheets that likewise needs to be used
  • Despite recent increases, historically low interest rates which make financing transactions appealing to buyers

Each of these is playing a part in making this a seller’s market. However, the last one, interest rates, is typically an area that most business owners don’t know impacts M&A deals. You see, nearly all transactions have some component of financing attached to them. Even very small deals are rarely all cash funded by the buyer. Most have a lender involved and usually it is the lender who is the most difficult party to please in the equation.

So, getting back to the original question:              

When is the best time for me to sell my company?

The simple answer is: Now!

Or at least, at a minimum, now’s the time to begin your exit planning process. Rarely does a business owner complete a transaction instantly after deciding that now is the time; usually there are some steps involved in creating a “buyer ready” business. Starting your exit program is usually best begun months or even years before your exit timing goals.

Interested in learning more? Then I highly recommend that you attend one of our exit planning meetings soon in your area. Use the following links to learn more:

No matter what you end up doing with your company, planning is the key. For many business owners, nearly their entire net worth is tied up in one highly illiquid investment. Planning to monetize the business could have a bigger impact on your financial legacy than any other decision you will make in your life.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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