It may have taken you a lifetime or even generations to create substantial value for your business, but with the right planning and advice, it may take only a year or two to double that value. Succession issues, retirement, technology, globalism, scale, etc. are all viable reasons to be thinking about selling your business. But what is the best timing for this? The simple answer is NOW! The reasons for this are the time it takes to maximise value and the market environment that is at a peak for at least the immediately foreseeable future.
As delineated in much detail on Calder Associates, www,calderbusinessvaluations.com.au webpages and in many blogs written by our extensive global professional team, the best way to maximise value is to prepare your business in advance to make it most attractive to likely acquirers. Then, to solicit bids globally from multiple interested parties. Depending on your company and your goals, this can take six months to two years or more. Feel free to email or call us to send you some of these highly informative and valuable insights for maximising value.
You have little control over the market conditions, but all the signals are pointing to this being an optimal time to initiate the selling process. Private equity transactions have hit a global post-financial high with 25% growth in the first nine months of this year due to cheap debt and record sums of ready cash. Even the normally slow summer months “…were some of the busiest I can remember for some time…” according to David Walker, global co-chair of private equity at Latham & Watkins.
According to the Financial Times, Buyout groups have raised record-sized funds backed by institutional and sovereign investors chasing high returns in a low-interest rate environment. Fuelling the boom are more relaxed debt terms. While easier access to loans is also firing deal activity. Rates, at which private equity sponsors and industrial acquirers borrow, have hit all-time lows. This has been helped by a big rise in issuance of collateralised loan obligations. In addition, “Companies are emboldened by the improvement in the overall economy and looking to use their financial strength to go global, fix their shortcomings and acquire technology,” says Jean-Baptiste Charlet, co-head of investment banking in France for Morgan Stanley.
Rather than the financial markets, the constraint on private equity has been the availability of quality targets according to Marc Nachmann, co-head of global investment banking at Goldman Sachs. Buyouts in the US in the first nine months of 2017 were up 31% and in Europe up 60%. Mark Redman, global head of private equity at Omers, a Canadian pension fund, said: “We could have two to three years of relatively buoyant growth and high levels of M&A.”
The prices being paid by investors today on average are the highest they have been for nearly the last ten years according to several sources. Deals and fundraisings are also fat. For the moment, banks are relaxing covenants. Buyout firms are once again favoured borrowers. Buyout multiples of EBITDA have risen from 5X to 10X and are now frequently seen in the teens. Dealmakers are predicting a pick-up in mergers and acquisitions in Australia, Asia and Europe, pointing to stronger economic conditions and more accepting attitude towards the slow pace of tax reforms in the US.
But lean always follows fat. The question remains as to how long the current cycle can continue. The US Federal Reserve under President Trump wants to curb leverage, with deal debt limited to six times EBITDA (earnings before interest, taxes, dividends, and amortisation). In addition to the Fed, US tax reform is looking to increase the lower tax rate on private equity profits (carried interest). This will lower returns to Private Equity Partners, possibly putting pressure on prices paid. Caps on interest rate deductions against taxable earnings are also under active discussion. In addition, the unstable global political environment from North Korea, to Iran, to even the separatist desires of Catalonia to Scotland create unknowable and uncontrollable uncertainties.
So, if you are thinking of selling your business, the time is now. Supply is low relative to demand, prices are high, private equity, industry, family offices, institutions, and sovereign governments are all looking for quality investments. The time has never been better for multiplying increasing decades of value in a single swoop.
Calder Associates. International Business Intermediaries.