Uncertainty in the market to sell a business
Since the start of the pandemic, we have been experiencing a great deal of uncertainty in the markets. COVID-19 sent the global economy into a frenzy, and it will take years to fully analyze the full economic effects. Many businesses were hurt and had to close down while others flourished and found new ways to be efficient and thrive. As of recent, we are seeing demand increase for stable < $5m revenue businesses or “Main Street Businesses”. However, inflation has left small business owners with a lot of questions.
Over the course of the pandemic, the government injected $6 trillion into the US economy. This left a historic amount of cash in the hands of consumers. Many consumer service companies were closed at this time which led to a focused demand on consumer goods. Many believe this is a key reason why the US Inflation rate is currently at a 40-year high. The Fed intervened and raised interest rates 4 times this year and more rate hikes are anticipated. This fix could take a while before it starts to slow and reverse inflation. With all of these factors looming, there is one key takeaway: Business owners that effectively navigated the pandemic are having success selling their businesses – and not for a discount.
Considering selling your business in the next five years?
Your Business
If your business is profitable and expected to stay profitable – buyer demand will remain high.
If your business is especially sensitive to inflation and interest rate hikes, such as a company serving the residential real estate market, your window to sell for the best price may be narrowing.
If your business is especially recession-sensitive, a decline in sales or profitability could lead to a cooling of buyer interest and/or bank interest in your deal. Sellers who wait too long may have to carry more seller financing or other buyer-friendly terms.
The Market
A record amount of capital is available in the market.
Profitable businesses are selling quickly, often with multiple offers in a competitive environment.
One of the most common metrics for business values, multiples or earnings, has and will remain steady.
Multiples in desirable industries have grown; indicating a flock to quality as buyers become more discerning.
The Buyers
Most buyers, whether Private Equity Groups, Strategic Buyers, or Individual Investors, typically use some combination of equity (cash) and debt. Rising interest rates make that debt more expensive. Buyer’s must put more cash in or try to push your price down. This could affect the type and quality of buyers in the buyer pool.
“A profitable business is always sellable. Banks still have a healthy appetite for business loans, and there is no shortage of buyers.”