Is Now a Good Time to Sell My Business?

When meeting with potential sell-side clients, probably the number one question we're asked is whether or not now is a good time to sell. I think it goes without saying that the number one impact this recession has on us when considering large financial decisions is fear. Whether it be selling your home, buying another, investing in the stock market, hiring employees, coughing up money for marketing, or any number of smaller decisions we face everyday, we're all afraid that we'll make a move that will hurt us down the road if things get even worse.

When it comes to selling your business, in addition to the emotional factors in handing away years of work to a stranger, the biggest fear is simply that it's not the right time. To move down this road is a major undertaking, and the fear that either you'll receive far less than the business is worth, or you'll invest a great deal of time and effort into the process and never hook a solid buyer can be crippling.

I'll try to address both these at once. Granted, there are many estimates amongst our fragmented business brokerage industry that valuations have dropped about 20 percent over the last 12 months.

Valuations, of course, are based on revenue and profits - which, not surprisingly - have also been down around the same rate amongst private businesses in the past year. That decline can have a way of spooking both buyers and sellers alike. The mergers and acquisitions market as a whole nearly ground to a halt in the latter part of 2008 and it remains anemic this year.

All of this has an interesting effect on our industry. While everyone is crippled by the aforementioned fear, there are simply more bodies out there than there have been in the past several decades. Let's examine this influx.

Buyers for small and medium-sized businesses take many forms but the most common are individuals and other companies looking to grow by means of acquisitions. The individuals are very often folks with jobs at larger companies. Those jobs that may have seemed so secure in their salaries and benefits are suddenly looking a lot more dismal. The impeding threat of pay cuts and layoffs hangs over the head of just about every human being in Corporate America. They also very often have money invested in various institutions, stocks, annuities, bonds, etc. If you as a seller were to put yourselves in their shoes, what would you do?

You can continue to slave away for your faceless corporate bosses, praying that you're not on the chopping block and that your 401k and stock options might bounce back. Or...you can assert yourself, invest your money in a small business that you can control, and grant your own job security. That's what many are doing right now and as anyone in this industry can tell you, it's lead to a massive influx of potential buyers looking for exactly that kind of opportunity.

If you're the other most common type of buyer - a company owner who's doing well and looking to grow - then you probably view the market of businesses for sale as a buyer's market. With lower valuations you can get what you want at a better price and grow your company with ease. Perhaps the most prominent example on a large scale is Oracle's recent acquisition of Sun Microsystems for $9.50 a share, 40 percent below Sun's peak value 12 months earlier.

Again, all of this contributes to the most prolific buyer market we've ever seen at HDI. Is this new influx of buyers all solid folks with money in hand? Not at all. But while we screen buyers harder than ever before to ensure that they're qualified, we (and you) still have an enormous pool to draw from.

These buyers are also aware of the fact that the shortage in credit is forcing otherwise stable companies to consider selling or taking on a partner. This plants the possibility in their mind that while in the past, a large percentage of the businesses for sale were - let's face it - going down the tubes already, an abundance of very solid business owners are having to explore their options to stay alive.

At any rate, the simple fact is that now is a great time to explore your options as regards selling. Yes, valuations may be down, but there are more solid potential buyers than ever looking for real opportunities. Not fire-sale distressed businesses that they can snap up for less than the value of the assets. No, great companies which will offer either an individual with some cash or another company looking to grow an amazing opportunity.

Will you sell for less than your company was worth a year ago? Probably. The values of all assets and securities around the world have been exposed as grossly inflated in the past few years. Still, you might be surprised what a solid buyer will offer you in terms of an exit.

All of this ignores the proverbial elephant in the room: the credit markets and their impact on our ability to get deals done. Next week we'll visit that topic and see how some creative people on all sides of the transaction are still making things happen.

We'll also discuss how you can position yourself and your business to stand out from the pack and attract buyers that really will pay you a premium for your blood, sweat, and tears.