THE ADVISOR (November 2013)

The following is a monthly publication by IAG intended for the benefit of those receiving our newsletters.

Cash Out or Hold Out: Is It Time To Sell Your Company?

by Christine Comaford (Forbes Magazine)

Are you slaving away, building a business with no plan or process or path to one day cash out?

If so, I think I know why:

1) You’re so busy running your business you don’t have time to plan your exit, or

2) You’ve likely not built a business that you’ve sold for many millions, or if you have, you’ve likely not done it 5 times yourself and helped others do it 50 times so you’re not sure what the process is.

Why and When to Sell

Every week CEOs call me asking for help in growing their business. The majority want to one day sell all or a portion of their company either to outsiders or their own team. Why sell?

Reason #1: The Seven D’s

Generally I find Founders want to sell their company when one or more of the famous “D”s are present: disenchantment, disability, disagreement, disintermediation, (excessive) debt, death, divorce, disease.  “When one or more of these ‘Ds’ are in play we can be assured that a business owner is interested in divesting of his or her business’” says Guy Beaudry, Managing Director, STS Capital.

If you’ve got one or more of the Seven D’s it’s time to sit down with a trusted advisor to explore your options. One of them will likely be able to start grooming your business to sell for top dollar, starting now. Keep reading to learn how.

Reason #2: Opportunity Knocks: Private Equity Version

Since the beginning of 2012 and even going back to the second half of 2011, an increasing amount of capital has become available, especially from private equity groups who are coming under pressure to invest the funds they’ve been sitting on. Funds that are in year 2 or 3 of their investment cycle and have only deployed a small portion of their capital are especially in trouble.

How big is the Private Equity overhang? $400 Billion. Yes, friends, there’s in excess of $400 Billion of capital needing to be deployed. These funds better get busy.

Reason #3: Opportunity Knocks: International Version

On another front we are witnessing an increased desire by Asian investors, especially the Chinese and the Japanese, to invest abroad–and in especially the Americas.  STS Capital Partners is actively involved in providing Asian buyers with opportunities to invest with a typical range of investment from $100 million and up. Hmm… could take care of one’s expansion capital needs, yes?

Reasons #4-6: Reality Check (aka What Matters to the Market)

In addition to the three reasons above, let’s overlay the Reality Check reason on top. Atlas Capital Strategies lists three:

A) the market for your business/industry is currently drawing a lot of attention with strong market valuations;

B) your company is growing and posting modest revenue and earnings growth and your industry is experiencing moderate M&A activity with “reasonable” valuations or

C) your industry is out of favor with acquirers/investors or a particular company is struggling to grow and can expect anemic valuations.

Should You Stay or Should You Go?

Based on which of the above is true for you, here are your alternatives:

1.     (Go or Stay) Sell the entire company: appropriate for category “A” above to allow you to retire, stay for a term to see if it’s still fun, or move on to your next venture; or

2.     (Stay) Sell part of the company: ideal situation for category “A” and “B” to get partial liquidity now and continue to drive your business to the next level to reap a greater payday in the future; or

3.     (Stay) Acquire another company: suitable for any of the three categories to boost topline growth and improve earnings for the combined entities; or

4.     (Stay) Focus on organic growth: all companies can benefit from such a strategy, however, categories “B” and “C” have a more pressing need to assess core product/service offerings, realign the organization and better manage expenses to prepare to sell when the market improves for your industry.

Why Now's the Time to Sell Your Business

by Gene Marks (Inc. Magazine)

Anyone who knows anything about business knows that you buy low and sell high. Here's why now just may be that selling-high time.

I think it's time to sell your business.

Just last week BizBuySell.com said "in the first three months of this year, the number of [small business] sales that closed jumped 56 percent from the same time in 2012, according to the Associated Press. Retirement was the No. 1 reason for those sales in the fourth quarter of last year and the first quarter of 2013, according to a survey by Pepperdine University and two trade groups.

So, are you going to sell your business in the next few years? It seems this is a trend very much worth considering. Here's why.

1. Aging U.S. Population  

According to the Urban Institute, the U.S. isn't getting any younger. It says 16.3 percent of the population will be more than 65 years old by 2020, a 31 percent increase from 2000. And by 2040 one in five people in the U.S. will be a senior citizen. This means that, assuming the system hasn't gone bankrupt, Angelina Jolie, Tiger Woods, Tobey Maguire, and Kate Gosselin will all be able to collect social security that year. George Clooney will be 79 years old. Now think about it. Suppose you would like to sell your business some day. Will it be easier to do in the next few years, or after 2020 when there will be many other gray-haired entrepreneurs also looking to sell out, retire, and watch re-runs of Jeopardy? Many smart business owners I know are prepping for their exit before a glut of metal shops, accounting firms, and pizza shops started in the good ol' days come up for sale.

2. Low Interest Rates

Low interest rates indicate that there has never been a better time to sell your business too. There's never been a better time for investors to borrow money and buy appreciable assets like your little business. How about getting a loan for next to nothing and using that money to buy a company or two that could, if managed properly, return double-digit profits? If your company falls into that category then now is a great time to offer it up to a hungry buyer looking for an opportunity.

3. Low Inflation

According to U.S. statistics, the 10-year moving average of inflation has been 2.46 percent, and the country's most current annualized inflation rate, according to the Bureau of Labor Statistics, is 1.47 percent. Only the Phillies team batting average is lower. Rates are so low it's almost criminal to put money into a savings account. This is why investors are desperate to find places to park their money and still get a decent rate of return. Savings and money markets aren't going to cut it. The exuberant stock market is a refuge. But what else? Exactly. Your business. With borrowing rates so cheap and the options for making money elsewhere limited, how about investing in a nice little company? It's a good pitch.

4.  Low Taxes

If you sell your business now the tax rate on the capital gain you'll likely realize is at a historically low level. Now, turn to C-Span and watch what's going on in D.C. You'll hear a lot of talk about deficits and the national debt and how in the world it will get paid back. And then there will be more rumblings about increasing taxes (like capital gains) on those dirty, rotten, wealthy people again. That's you. With taxes at such relative low levels, what better time is it to consider selling out?

Visit our website to find out why NOW is the best time to sell your business. The video on the site will provide you with very beneficial information that will help guide you in your decision to sell. Once you have reviewed the video you can reach us through our contact page here or you can call us directly at 214.272.4950.

Contact us directly at 214.272.4950 or by email to info@intlag.com to have an onsite analysis to determine marketability and salability of your business.  

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IAG, LLC is a business intermediary consulting firm, facilitating the buying and selling of businesses. For more than 25 years the Management Team has been a leader in the industry and has helped the owners of privately-held companies "cash in" on all their hard work and get the best payoff possible.

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