When you’re ready to retire, or exit your business, you may think selling to a competitor is your only option. But competitors are seldom your best buyer. They’re rarely willing to pay top value because they’re already established in the market.
Labor issues are affecting the M&A market. For some business owners, it means decreased value because they can’t find people to maintain operations or replace the owner after a sale. But labor shortages are also sending buyers to market. When they can’t hire the talent they need to grow organically, they look to expand through acquisition instead – buying companies with fully staffed teams.
Tom West is considered by many to be the founder of modern day business brokerage. A few years ago, he calculated what percent of businesses on the market actually sell. For most small businesses, those with sales of $10 million or less, he figured fewer than 25% actually transition to a new owner. There are a lot of factors driving down success rates, but here are the five I hear about most often:
From 9/11 to the Great Recession to COVID-19 – after every hiccup in the world, buyers want to know how your business stood up against adversity. In 2015, buyers were still asking, “But how’d they do in 2009?” Today, buyers want to know how you’re getting through the global talent shortage.
Right now we’re in a strong seller’s market. Despite the economic uncertainty and turmoil in the world, mergers and acquisitions has not cooled down. It’s economics 101, supply and demand, and there are just more buyers than sellers on the market.
During the Cornerstone annual State of M&A Conference held in Green Bay, we organized our own local “shark tank” event. Four private equity (PE) firms were invited to review and submit an offer on a hypothetical company. One by one, they revealed their offers at the event and talked about how they arrived at that value.
Business values increased in 2021, despite ongoing challenges from the pandemic, talent shortages, and supply chain disruption. Deal activity continued at an intense pace, with advisors across the country reporting increases in both incoming deal flow and completed engagements.
If you want to buy a business in today’s market, this might be just the strategy you want to take. Identify your ideal targets, reach out, and plant a seed. It might pay off now, it might take years, but it’s a way to build opportunity for your business going forward.
Business valuations have hit record highs and deal teams are bracing for what is expected to be the largest M&A run most advisors have seen in their careers. Business confidence, buyer capital, seller burnout – it’s all combining to create a perfect storm of deal activity.
If you’re a business owner, you’ve probably had a rough couple of years – and the challenges aren’t over. While COVID-19 may be weakening its grip, talent shortages, supply chain issues, and inflation are still very much at play.