EXIT READINESS
A Perfect Storm Fuels Surge in M & A
The Baby Boomer generation has reached retirement age and is making the largest transfer of generational wealth in history. Call it the perfect storm.
At the same time, international investors are hungry for American businesses, which are considered the best investments in the world.
Finally, a dramatic surge in M & A activity has emerged as an unexpected consequence of the COVID-19 pandemic, which upended the global supply chain.
What does all this mean?
It means you, as a business owner, may get a phone call from a buyer offering you an eye-popping price for your business – a business you had no intention of selling.
What Will You Do? prices to continue throughout 2022 and into 2023, but don’ t sit around and wait for the phone to ring. Become educated about the stages of making a deal, talk to your business partners or family members( if your business is family-owned) and consider your personal goals.
Most importantly, talk to your trusted advisors.
When you receive an unsolicited offer, find out if it’ s a good offer in today’ s environment. You may be caught off guard by the suddenness of the offer, but don’ t let that discourage you from considering it. Conversely, don’ t jump in and accept it without doing your due diligence. The value of your business is in the eye of the beholder. A competitor making the offer has a different motivation than a private equity buyer or an ESOP. Valuation is a range and sales price is a negotiated amount. If you decide to move ahead, you’ ll need to consider several variables to help determine a fair price.
The time to consider your options is now, before that phone call comes.
Unsolicited offers to buy businesses are prevalent today in part because of the global supply chain disruptions caused by the pandemic. Manufacturers and distributors in particular are attractive to companies that are looking for ways to guarantee their supplies of raw materials and component parts. They were unable to get those goods during the pandemic, so they are shifting to vertical integration by acquiring manufacturers and distributors that can help them ride out the next business crisis.
But the ramp up in offers and prices goes well beyond the manufacturing and distribution sectors. An Ohio fast food restaurant chain was recently offered a multiple of 18 in an industry that typically sees multiples of eight to 10. Other industries that are seeing unusually strong offers include trucking, medical innovation and professional services firms.
Buyers don’ t mind paying more for acquisitions right now, including premiums of 15 to 18 percent, because they are looking for synergies. That’ s why competitors are increasingly buying each other, and companies are buying their suppliers.
Can You Wait 10 Years?
Fueling the momentum is the reality that prices may not be this high again until the height of the next business cycle, which could be 10 or more years from now.
If you’ re considering an exit within that timeframe, you should seriously consider any offer that comes your way. We expect today’ s strong