Michigan’s economy over the last decade or more, coupled with lowered property values from the last recession, have left business owners wary. Unsure of whether they would get a decent deal on the sale of their creativity and hard work, many business owners have worked far longer than they planned to in a hopeful attempt to “wait out” the market. Will they now be rewarded for their foresight and patience? Many think so; others as asking: Is now a good time to sell my business?
In late September BizBuySell.com released the results of their annual survey of 1,500 prospective business buyers and sellers, and the good news for sellers is: many of your fellow would-be sellers are feeling more optimistic. Twenty-one percent of business owners surveyed were “very confident” they could sell their business at an acceptable price in this year’s survey, up from 17.6% last year. And nearly half felt they would get a better price for their businesses this year than last.
At the same time there was a drop in confidence among would-be buyers that they could purchase a business at an acceptable price at this time, and 36% of them said they were less confident they would be able to do so.
Why does the advantage in the business market appear to be shifting some from buyer to seller? When asked, nearly half of respondents indicated it was because of better business financials. The second quarter of 2014 revealed a much brisker pace for business sales, rivaling pre-Recession numbers for the first time since 2008. Ninety-five percent of would-be buyers said they were hoping to enter the market in the next 1-2 years, and 75 percent of would-be sellers hoped to sell in that same time frame. While there is still some imbalance between potential supply and demand in this market, they are obviously beginning to even out.
According to Max Friar, “In my nine years in M&A, I have never seen this many sell-side opportunities. We have the great fortune of representing a number of high-quality companies with a robust pipeline.
While there are always quality buyers for quality sellers, I am sensing the buyers are becoming more finicky about the businesses that are available. I believe that this is due to the strength of the economy overall; buyers are feeling more confident, like they can wait for the right opportunity. A few years ago, it was commonplace to work with buyers who were looking to buy a job.”
Better perceived market conditions had an impact on the conditions and concessions would-be buyers and sellers were willing to accept with these sales. More sellers indicated they would be willing to offer seller financing, and fewer buyers expected it to be included in their deals. This may also be because of the loosening of demands from the financial sector or increased confidence in credit flow.
Sellers also indicated less willingness to remain working at their business post-sale, but this decrease can perhaps be attributed to sellers having their retirement plans already long delayed by this unstable market, rather than any lessened desire to cooperate with buyers. Half of them expected to work at least one day per week at the business after the sale.
So, to answer the question of whether now is a good time to sell your business, it really depends on the quality of your business and your price expectations. The marketplace is shifting. Manufacturing and service businesses with established history and strong cash flows will sell for premium prices (often in any market). Businesses marked by mediocre performance will still sell, however the road is getting more difficult now due to more sellers entering the marketplace and the increasingly selective nature of quality buyers.
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