Many business owners have preconceived notions about who will buy their business or whether it’s even salable at all. A lot of owners think their most likely buyer option is the competitor down the street. Maybe that was true, once upon a time. But the M&A world has changed dramatically—and continues to evolve.
According to the Q1 2020 Market Pulse Report published by the International Business Brokers Association, M&A Source, and the Pepperdine Private Capital Market Project, advisors reported that of the small and medium businesses currently for sale, about 35% had closed, 40% were operating at partial capacity, 4% had benefited, and 21% remained unaffected by COVID-19.
You want to know you’re getting fair market value for your business. The best way to do that is to create a structured transaction process.
The market doesn’t like uncertainty. Certain buyers are retreating into wait and see mode, waiting to see how long the lockdowns will stay in place, how supply-demand issues will shake out, and whether we’ll hit a full-blown recession. But opportunities happen when others retreat. That’s why the coronavirus pandemic could be the best opportunity we’ve seen to buy a business in the last five years.
As business owners are working to process the impact of COVID-19, we’re looking at how it will affect M&A. In the short term, some companies will slow the pace of acquisitions. That’s natural in uncertain times.
A no shop provision is an important part of M&A transactions. Also known as an exclusivity clause, a no shop clause prohibits the seller from sharing information or negotiating with other would-be buyers for a specified timeframe.
Earnouts are used to bridge a valuation gap between a buyer and a seller. It’s a compromise, of sorts, to break a purchase-price deadlock when the seller wants more than the buyer is willing (or able) to pay.
Business owners thinking about exiting their business may be hearing the terms “platform” and “add-on” acquisitions. Understanding these terms, and knowing which category you might belong to, can help you prepare your business for a competitive, higher value sale.
Your business is on the market and you’re looking forward to that glorious day when you can let go of the pressure and responsibilities of ownership. But don’t let those future plans distract you from what’s going on today.
You don’t want to hear this. You might even be a little offended. But when it comes time to sell your business, you are the least valuable part of the equation. Unless you’re sticking around with an ownership stake or long-term employment contract, your experience means very little to a buyer.