It is no secret when purchasing a business you are going to kiss a few frogs before finding a solid company within your wheelhouse that excites you.
2009 has shown less than normal inventory levels for the solid to exceptional quality businesses. Some feel this is due to the poor state of affairs and as a result most businesses may now fall into the poor to fair quality category. But we have found the story to be quite different.
With so much talk of reduced valuations and constriction in financing options, Sellers considering selling with solid to exceptional quality companies decided to remain on the sidelines until prevailing conditions improved.
On the other side of the equation, as predicted, in the 4th Qtr ’09 we saw a surge of qualified buyers coming into the market place. It stands to reason as we experience 10% unemployment rates with some of the most hyper educated and experienced individuals ever. Many are tired of their roller coaster careers and are now focused on controlling their own destiny either by starting their own company or mitigating the risks of a start-up either by purchasing an existing established company.
Part of mitigating risk when purchasing a company is to target and focus on the solid and exceptional quality companies that have weathered the storm with grace, ease, growth and cash flow. Yes, they do exist. This category, regardless of prevailing conditions, always represents the smallest portion of the available businesses for sale.
This brings us to the reason why ‘Timing is Everything: Why Now is the Right Time to Sell Your Company’.
There has been a lot of media coverage focused on Baby Boomer business owners and the expected ownership turnover in the decade to come. The first of the Baby Boomers just turned 65 with 77M people from 1946 to 1964 and the youngest being 47 covering an eighteen year span.
Census Bureau: Characteristics of Business Owners 2002 reports 1-in-3 of all business owners were over 55 years of age in 2002. Of the owners of respondent firms 31 percent were over the age of 55; 29 percent were between 45 and 54 years old; 24 percent were between 35 and 44 years old; 12 percent were between 25 and 34 years old; and only 2 percent were under 25 years old.
Our typical Seller is 55+ years of age while our typical Buyer is 48+ years of age. So, if we take into account our statistical ages of Sellers and, more importantly, profiles of typical Buyers, the majority of this turnover in the next ten years is going to stay within the Boomer generation.
In the short term, we anticipate through the 3rd Qtr 2010 there will be significant competition for the “good” businesses that may have experienced hits to the top-line but have held or increased their bottom-line through efficiencies or market share gains. This competition will come from the traditional Boomer Buyers in the market place plus the addition of the 10% unemployed with talent, desire and the means.
But as the Baby Boomers continue to age they will be relying on Generation X with 55M people from 1965 to 1981 to become the driving force of business acquisition. It would stand to reason as Sellers start to outnumber Buyers the corresponding business valuations may drop unless you can plan for and ensure your business is one of the few in the exceptional category.
Based on this, we feel the Sellers sitting on the fence will be better off going to market now before the typical ratios of buyers to ‘good’ businesses return to normal, minus normalized un-employment rates removing potential Buyers from the market and minus the reduced Buyer pool within Generation X that follows.
In the long run, planning for an exit in 3, 5 and 7 years out will provide the greatest options and the ability to take advantage of the Boomer Buyers still in the market place with normal to strong valuations.
Planning your exit will help ensure your business is one in the strong to exceptional category which will improve the probability of a transaction consummating and improve the overall value. We are available to assist you or your friends and family with a myriad of services to accomplish the ‘Timing that is Right’ for you. Roupp Acquisitions Services