Navigating a Buyer's Market: Advice for Selling Your Business

To add to the headwinds in the M&A markets, the state of the economy has bolstered talks of a recession in 2023. Some of the economic data:

• Historic higher than expected 0.75 basis point rate hike in June
• Lowered real growth expectations, with Conference Board GDP estimates reduced to 1.3% for 2022 and 0.2% for 2023 ^[1]
• Supply chain issues that continue to disrupt manufacturing, goods, and services
• Oil prices, while having abated slightly in recent months, remain elevated
• Fastest inflation increases in the past 40 years, with current inflation running at 8.5 % in July

As a business owner, do you have enough gas in the tank to make it to the next recovery and/or until the next seller’s cycle?

1. Cash Flow Challenges: Limited access to capital at higher rates.
2. Lower Margins: Expending valuable resources on low-margin products/services negatively impacts cash flow.
3. Ineffective C-Suite: Little or no management team to run the business after your departure.
4. Bad Decision Making: Lack of financial transparency limits fact-based decisions.

Preparedness planning ensures that business owners receive maximum value at sale. It also ensures sellers receive the unlocked value and not the buyer. Below are multiple ranges and how lack of preparedness minimizes value.

Example of Value Range Based on Multiples of EV

Why should owners prepare before selling? In this example, there is a $13.5 million gap between a 4x multiple and 7x multiple at sale.

The average age of a business owner in 2005 was mid-to-late 40s. In 2008, many business owners suffered large losses in value due to the Great Recession of 2007-2009. Over the next ten years, many business owners rebuilt enterprise value, and those that sold between 2018-2019 realized some of the highest valuations and sale prices in 20 years. It is important to mention that business values, deal terms, and multiples were favorable to sellers during this time. A large reason was the $2 trillion in dry powder from financial buyers competing to acquire companies.

Fast forward to June 2023, and we see:

• That same business owner is in their late 60s or early 70s;
• Has been through one of the most challenging business environments due to the pandemic; and,
• Is staring down one of the most challenging economic downturns in the past twenty years.

• Cost of goods/services sold will continue to go up, causing some of the increase to be passed on to the customer, potentially pricing products/services out of the market.
• Buyers request four years of financials when performing due diligence. Financials trending flat or upward during those four years positively impact your sale. Financials that are volatile or trending downward will negatively affect business value.
• Over the next eight years, 8.4 million business owners will try to sell their businesses, creating a competitive seller’s market.
• Are you and your business prepared if a buyer knocks on your door?

• More competition creates a more selective buyer’s environment.
• The purchase terms are more restrictive and will have a higher performance matrix if there is an earn-out attached to the sale.
• We expect lower multiples, especially for less attractive businesses.