The last 3 years have not been easy for most middle market companies in the US. Sales have been mostly flat to slightly up at best for many companies with the 2012 outlook promising more of the same. Is there more to consider if you’ve been thinking about selling or have you been holding back for better times?
Here are 5 Reasons to Sell Your Business in 2012:
1) You are a near-retiring Baby Boomer
You are tired of putting everything on the line year after year and would like to take some chips off the table. You want to be free from personal financial guarantees required of covenant-loving lenders. You are available for a few months to transition the business to Private Equity or a Strategic buyer who wants to grow it further.
2) The Bush Tax cuts will be ending in 2012.
Given the nations increasing debt obligations and reduced tax base income the Bush tax cuts over the last 10+ years will likely expire in 2012. And if you ask your CFO or do a little research on the tax implications of a 2012 Business Sale like CPA Mackey McNeill did from Covington KY, you may be shocked to learn that by selling a business for $5 million could cost up to $150,000 more in taxes, and a $10 million sale could cost you over $300,000 in tax bites if you wait to sell in 2013. Think about what it would take to earn that money back if you wait for a 2013 sale or beyond. Figures like that can make the decision for planning a 2012 exit much more compelling.
3) Business Sale Transaction Multiples are getting back up to pre-recession levels.
This means you no longer have to wait for a bigger pay day if your EBITDA over the last couple of years is back on track. For lower middle market companies with enterprise valuations (EV) below $25million GF Data reports sales multiples for the first half of 2011 between 5.2x to 5.5x times EBITDA, very close to prerecession levels. And lucky owners with EV above $50million are seeing multiples above recession levels, now averaging between 6.8x and 7.5x EBITDA. What are you waiting for?
4) If growth in 2012 (and beyond) will require huge Capex
Many owners can still vividly recall the anxiety and sleepless nights they endured by taking on huge financial risks to build a capital equipment intensive business. Borrowing to buy heavy manufacturing equipment or other needed upgrades still takes nerves of steel, and 2012 will be no exception. What if demand falls back again, or a key customer account requires another expensive capex retooling to keep going? Selling the business in 2012 will let the new owner(s) deal with that headache, and likely with more horsepower to finance and capitalize on any big ticket purchases. Let them do it!
5) Because you’re a leaner and more efficient company.
Let’s face it, the last few years taught many a middle market CEO the value of a buck saved is a buck earned. Most companies still around today are leaner and meaner as a consequence of reduced sales demand. Moreover, instead of hiring new staff, many firms found time to improve IT (software) and process throughput efficiencies. Better, faster, cheaper and more profitable translates to a higher valuation when it comes time to sell. If your business is at its most efficient output level as compared to industry comps, then consider this a prudent time to exit, and turn the keys over in 2012.
According to my old alma-mater Ernst & Young, M&A deals in 2012 are expected to increase for the reasons above and others. One reason is because buyers have also been holding back on R&D, CapEx re-investment, and hiring, just like you. Add to that a build-up of cash reserves on strategic buyer balance sheets, and Private Equity funds, and you have the classic case for pent-up demand for growth. And as buyers realize they can no longer hope for enough “organic growth” to materialize in 2012, they need to acquire it. And that means a growing payday for 2012 sellers. So at least inquire about your options by calling or writing to me for my opinion, it’s always free.
About the author: Rick Andrade is a Los Angeles based investment banker focusing on helping middle market companies in finance, mergers, and acquisitions. He is a DRE Broker, a volunteer SBA/SCORE instructor counselor, has his BA and MBA from UCLA along with his Series 7 & 63 FINRA securities licenses. Rick blogs at Andrade on M&A (http://www.rickandrade.com). He can be reached at email@example.com