On the surface, this may appear to be one of the worst possible times to sell. While we don’t want to pretend that challenges don’t exist, for some owners this can actually be a window of opportunity for finding a target buyer and selling your business. How can this be, and what key points are used to determine the success of business selling during this uncertain economic period?
This article is the first in a series assessing the business acquisition market. Throughout these articles, we’ll help you understand which owners will find this to be a good time to consider selling versus those who should consider committing to another three to five years of ownership. We kick off with the most important starting point: are there any prospective business buyers right now to complete an M&A transaction?
Markets are heavily dependent on how supply and demand match up. At this time, significantly fewer businesses are going onto the market. Even more important, fewer well performing businesses are in that group.
At the same time however, there are a significant number of buyers actively looking. With a lack of supply, this opens up the opportunity for company buying and selling if your target company prospect is one of those actively searching. Where do you find these buyers that are actively looking? These come from several sources:
- Existing Business Owners
- Private Equity Groups (PEGs)
- Family Office Investors
Let’s dig deeper into who these potential acquiring companies and entities are.
In every recession there are many, very capable individuals who find themselves no longer employed through no fault of their own. For those who have always had an entrepreneurial urge and have managed to accumulate some capital, their unemployment can be the tipping point to move them to pursue their dreams of owning their own business.
Existing Business Owners
Another important group are existing business owners, especially those who have a strong financial position. Some of the best potential buyers are those in the same industry, especially middle age owners or family businesses with a new generation of owners coming along. These owners already understand your industry, the business valuation, as well as the profit and loss associated with it. They are also more likely looking to expand and will have the liquidity or access to the cash to get deals done.
Private Equity Groups
If you happen to have a strong mid-size or larger business, private equity groups (PEGs) can be excellent buyers. These groups are among the most active in the market now. This is largely due to an ongoing challenge they have—they collectively have over $1 Trillion to invest!
This money is often referred to as “Dry Powder”. These investors raise money via “Funds” for which they solicit commitments from insurance companies, college endowment funds and similar groups that have in-coming cash that they want to generate a good return on.
Private Equity has historically provided a better return than many other options, so it has had great success at raising new “Funds”, most of which raise millions if not billions of dollars. However, PEGs don’t generate any return without investing in solid, high performing companies. Thus, they are under the gun to find these companies before their competitors. There are now thousands of PEGs in the US.
Family Office Investors
A fourth group that often keeps a low profile are family offices. These are wealthy families that have typically sold a large business in the past, which generated a substantial influx of liquidity. After investing the proceeds of their family business sale in the stock market and commercial real estate, they often reach the same conclusion as the PEGs. That is, the best potential returns are from investing in solid businesses and helping them grow further.
In today’s market, given the diminished supply of good businesses for sale, these groups are aggressively looking for the right business to buy.
So how do you become that right business for these potential buyers to be interested in? We’ll dig deeper into that in our next installment and help you gain more useful insights!
Acuity Mergers + Acquisitions is a business advisory firm that assists privately held businesses through ownership transitions. We are business transaction experts, so you don’t have to be. A successful business ownership transition is a living, breathing thing and requires a customized approach that takes all the unique variables posed by all parties into account. Contact us to schedule a consultation.