We are in an active M&A market right now and one of the most common questions we get from potential sellers is about timing. Below are three questions you should ask yourself to determine the right time to sell your business.
1. What is the State of the M&A Market?
Are valuations up or down? Is it a sellers’ market or is it a buyers’ market?
Our opinion is that the M&A market right now is as good as it has been in the last 20 years. Valuation multiples are at historic highs and buyers are extremely aggressive. We do not believe that valuations will increase any further from here. Many experts note that we are 9 years into a typical 7 year expansion. We cannot predict how long valuations will remain at these lofty levels, but we do know that it is a sellers’ market.
2. What is the State of My Company?
How is your company performing? Growing companies generally get higher valuation multiples so it is best to sell into growth. When sales plateau or begin to decline, buyers take a more conservative approach to valuation. Sellers with flat or declining sales can still get excellent prices in this market, but you shouldn’t wait until your business and your industry starts to decline.
3. What is My State-of-Mind?
Regardless if the M&A market is active or if your company is performing well, you need to be personally ready for a transaction. Whether you want to sell 100% of your company and retire; or perhaps sell a majority of the company and take some chips off the table, you need to be ready both professionally and personally for a significant change.
CenterPoint’s Take
While we don’t have any insight into the state of your company or your state-of-mind, we do know that this is an extremely active M&A market. If you are considering selling anytime in the next few years then it is best begin exploring the possibility now. When M&A markets turn down and valuations contract, it generally takes several years before they recover. Sellers who miss this window should be prepared to hold on to their companies for many more years if they don’t start planning and preparing now.
Selling a company can take about 9 months from start to finish, and buyers sometimes require owners to stay on for a transitional period so keep this in mind when considering your exit timing.