What's The Market Like For Selling Your Business?
Contrary to popular belief, the market for selling you company is as strong as it’s been in over 5 years. Many factors have contributed to this hot market for sellers.
To begin, private equity group funds have gone stale due to lack of investment during the recessionary period in our economy. You had companies struggling to survive, often with downward trending financials, forcing PEGs not to invest. Because of that situation, PEGs are hungrier than ever to find viable businesses to acquire. The high net worth individuals who have financed those various PEG funds are becoming increasingly impatient with the lack of return on their money, so they to are putting tremendous pressure on the PEGs to find the companies to purchase.
From a tax perspective, though up from 15% in 2012, Capital Gains rates remain relatively low at 20%. While your effective tax rate and the type of tax imposed depends on many factors, such as whether or not your selling the stock or assets of your company, many buyers prefer asset sales, while most sellers prefer stock sales. The reality is, though most buyers would prefer an asset sale, oftentimes they require a stock sale due to needing to retain various licenses, contracts, purchase orders, certifications, etc. that are requisite to keeping customers, sustaining revenue and seamlessly transitioning in as the new owner.
Another type of buyer, Synergistic buyers (also known as corporate buyers) are more motivated than ever to acquire companies. If you are considering selling a business to a synergistic buyer, its crucial to understand the driving motivations of corporations. According to Axial Market, “Often the CFO is one of the lynchpins in deciding whether or not an M&A transaction is desirable for the strategic acquirer. Drinker Biddle and the CFO Alliance recently released the results of their Q2 2013 CFO Pulse Survey, offering insight into how CFOs from around the country are thinking about their businesses.”
The survey revealed that there is a primary focus on increasing revenues and growth in both existing and new markets. Also, many CFOs are seeking partners with experience and 23% are considering M&A opportunities. According to Nick Araco, CEO and President of CFO Alliance, “It is an interesting time to be a CFO.” He continued, “During the first half of the year, nearly 90% of our members were focused on driving top line performance and increasing revenues, market shares, and profitability.” One of the most effective ways to accomplish driving the top line is through acquisition of companies, which can not only increase revenue overnight, but quite often the synergistic company will experience economies of scale and the reduction or elimination of many of the acquired entity’s expenses.
Another factor that exemplifies the improved market for selling your company is the SBA guaranteed lending environment. Approximately 5 years ago, immediately following the home lending debacle, lenders greatly tightened up their mortgage lending practices. Soon thereafter, those same major lenders decided to stop issuing goodwill commercial loans, with smaller lenders blindly following suit. This created a complete void in the marketplace, as the vast majority of companies we engage or largely goodwill based. Most have minimal hard assets or real estate for the lenders to collatoralize, which made many loans impossible to obtain. Now, goodwill lending has made a comeback. Through the deals we’ve closed over the past 24 months, we have several lenders that are doing goodwill lending. Also, the cap on SBA guaranteed loans has been raised to $5,000,000. This is important for our high net worth, individual buyers. Many of the companies represent fall in the $5,000,000 to $12,000,000 valuation, so with the $5,000,000 available via SBA Guaranteed loans, individuals buyers can now compete with pegs and synergistic buyers in the acquisition of lower middle market companies. That competition obviously benefits the seller.
Lastly, the recessionary economy has created a large pool of owners who were forced to re-evaluate the way they ran their companies. They had to think of more creative ways to increase their revenue, and that was usually at a slow and steady rate. Further, they were forced to reduce expenses without effecting revenue. This has created a wave of leaner more efficient companies, which are hugely attractive to all buyers. For more information about selling your company please contact our managing partner Les G. Wozniak at les@thegeorgeryangroup.com or call him at 214-682-8562.
To begin, private equity group funds have gone stale due to lack of investment during the recessionary period in our economy. You had companies struggling to survive, often with downward trending financials, forcing PEGs not to invest. Because of that situation, PEGs are hungrier than ever to find viable businesses to acquire. The high net worth individuals who have financed those various PEG funds are becoming increasingly impatient with the lack of return on their money, so they to are putting tremendous pressure on the PEGs to find the companies to purchase.
From a tax perspective, though up from 15% in 2012, Capital Gains rates remain relatively low at 20%. While your effective tax rate and the type of tax imposed depends on many factors, such as whether or not your selling the stock or assets of your company, many buyers prefer asset sales, while most sellers prefer stock sales. The reality is, though most buyers would prefer an asset sale, oftentimes they require a stock sale due to needing to retain various licenses, contracts, purchase orders, certifications, etc. that are requisite to keeping customers, sustaining revenue and seamlessly transitioning in as the new owner.
Another type of buyer, Synergistic buyers (also known as corporate buyers) are more motivated than ever to acquire companies. If you are considering selling a business to a synergistic buyer, its crucial to understand the driving motivations of corporations. According to Axial Market, “Often the CFO is one of the lynchpins in deciding whether or not an M&A transaction is desirable for the strategic acquirer. Drinker Biddle and the CFO Alliance recently released the results of their Q2 2013 CFO Pulse Survey, offering insight into how CFOs from around the country are thinking about their businesses.”
The survey revealed that there is a primary focus on increasing revenues and growth in both existing and new markets. Also, many CFOs are seeking partners with experience and 23% are considering M&A opportunities. According to Nick Araco, CEO and President of CFO Alliance, “It is an interesting time to be a CFO.” He continued, “During the first half of the year, nearly 90% of our members were focused on driving top line performance and increasing revenues, market shares, and profitability.” One of the most effective ways to accomplish driving the top line is through acquisition of companies, which can not only increase revenue overnight, but quite often the synergistic company will experience economies of scale and the reduction or elimination of many of the acquired entity’s expenses.
Another factor that exemplifies the improved market for selling your company is the SBA guaranteed lending environment. Approximately 5 years ago, immediately following the home lending debacle, lenders greatly tightened up their mortgage lending practices. Soon thereafter, those same major lenders decided to stop issuing goodwill commercial loans, with smaller lenders blindly following suit. This created a complete void in the marketplace, as the vast majority of companies we engage or largely goodwill based. Most have minimal hard assets or real estate for the lenders to collatoralize, which made many loans impossible to obtain. Now, goodwill lending has made a comeback. Through the deals we’ve closed over the past 24 months, we have several lenders that are doing goodwill lending. Also, the cap on SBA guaranteed loans has been raised to $5,000,000. This is important for our high net worth, individual buyers. Many of the companies represent fall in the $5,000,000 to $12,000,000 valuation, so with the $5,000,000 available via SBA Guaranteed loans, individuals buyers can now compete with pegs and synergistic buyers in the acquisition of lower middle market companies. That competition obviously benefits the seller.
Lastly, the recessionary economy has created a large pool of owners who were forced to re-evaluate the way they ran their companies. They had to think of more creative ways to increase their revenue, and that was usually at a slow and steady rate. Further, they were forced to reduce expenses without effecting revenue. This has created a wave of leaner more efficient companies, which are hugely attractive to all buyers. For more information about selling your company please contact our managing partner Les G. Wozniak at les@thegeorgeryangroup.com or call him at 214-682-8562.