Selling a Business in Uncertain Times
Last year was a record year for private business transactions. The below chart from Pitchbook shows that if 2022 continues with the pace of Q1, we will end the year behind last year, but with strong M&A volume, nonetheless. Regardless of transaction volume, there are fundamental keys an owner should keep in mind during the process. Today, we will highlight three key points to keep in mind when deciding to buy or sell.
Selling a Business is not a Sprint
Once a business owner has made the decision to sell, the often-lengthy sale process begins. SEACAP encourages its clients to expect the sale process to take 6 to 12 months. Our engagements are structured in phases to provide flexibility for the owner and to minimize disruptions in running the business. The decision-making process should not be rushed or influenced by the short-term market noise. Rather, owners should focus on their exit strategy and timeline. The macro-economic landscape will forever be in flux so the daily ebbs and flows of the markets should not be the loudest voice.
The U.S. Federal Reserve Bank has been increasing interest rates to tame inflation and is likely to continue into 2023. While rising short-term rates and inflation are not directly correlated to a change in value for a company, increasing expenses add pressure to the bottom line and may negatively impact earnings. A business valuation provides an owner with insights into the levers that increase or decrease value and the reasons why values can change with varying market conditions. Thus, SEACAP encourages all owners to get their business valued before beginning the selling process.
A Quality Team of Advisors is Critical Buying or selling a business is something you can do on your own, but you can expect a much better outcome if you have a team of experts. We recommend a team that usually includes the business owner’s Accountant, Lawyer, Wealth Manager and M&A Advisor. Having a team of experts in place and working together on the front end will help ease burdens on the owner and get the deal done while minimizing surprises and maximizing value. Collectively, a team of experts can help minimize how an ever-changing environment can impact a transaction.
For a deeper discussion on the transaction process, valuations, or a team of experts, give SEACAP a call at (901) 452-4545