2020: Trying to Time the Market

Business transaction conditions were primed in 2018 for an exciting 2019, and last year did not disappoint. Buyers were active, lenders were aggressive and valuation multiples were spiking 12 months ago as 2019 got rolling.

As the year progressed, however, momentum did slow a bit, and as we kick off a new decade in 2020 business owners all seem to have the same question – in this a good time to sell my business?

The answer to that question is simple – yes it’s a good time to sell your business, as long as you’re ready to sell your business.

The absolute biggest mistake business owners make year after year after year is trying to “time” the market and sell their businesses when they believe the market is at its peak.

The reality is, while market conditions are important, the most critical factor in deciding when to sell is simply deciding when you are ready. That’s a whole lot easier than trying to predict the market, and ultimately a much less stressful process.

If you’re ready to sell your business, don’t worry about planning for the perfect market conditions – worry about positioning your business in the best light possible against other businesses for sale. The market will take care of itself.

With that said, there’s no harm in understanding what the seller’s market looks like because it does help us position our available businesses for sale as strategically as possible. When we consider the seller’s market, we concentrate on three things:

  1. Buyer Activity
  2. Financing Availability
  3. Valuation Trends

Buyer Activity

Generally speaking, the more buyers we have looking at your business, the more likely you will sell it, and for the highest price possible. This is basic supply-and-demand, so our objective has been, and always will be, to get your listing in front of as many qualified buyers as we can.

As far as specific numbers go, traditionally our listings would generate between 50 and 60 signed NDAs from qualified and motivated potential buyers. These are people actually signing our non-disclosure agreement, not just kicking tires. In 2019 we saw that number increase to more than 75 NDAs per listing, and several exceeded 100 interested buyers.

So we can say with all confidence that buyer activity, at least for our listings, is trending up as we enter 2020. The bottom line here is that there are more buyers looking at businesses today than in the past, which is nothing but good news for business owners trying to sell their companies.

Financing Availability

In the past two years, 75% of our closed deals were funding through third party financing. This is up significantly from the years prior to that, which speaks directly to the access to debt in the acquisition market recently. In fact, this has been one of the more aggressive lending climates in our industry since 2009.

Lenders seem to have identified and settled into a comfortable space, but we have seen some tightening on financing in the latter half of 2019 continuing into 2020.

The biggest trend we are seeing right now across the board is that lenders are putting much more emphasis on the quality and relevance of a buyer’s experience and background on their lending decisions.

Lenders have always wanted borrowers that demonstrated a past ability that will translate into probable future success in the business they are purchasing, but today these lenders are going one step further. They prefer to see direct industry experience from a buyer in the business being acquired.

While the lenders have narrowed their scope on who can qualify for an acquisition loan a bit, the good news is that interest rates are still extremely reasonable and down payment requirements can be as low as 10% in some cases. So, overall, the acquisition financing climate is still very strong heading into 2020.

Valuation Trends

Business valuation multiples were definitely spiking in 2018 and going into 2019, but as 2019 progressed we started to see multiples normalize and settle in. What we have now as we kick off 2020, generally speaking, are multiples that have stabilized in most industries.

With that said, business valuation multiples are still very strong as 2020 gets underway – we are just seeing fewer deals where multiples are spiking.

So, is it a Good Time to Sell?

If you’re ready to sell your business and your business is ready to be sold, then it’s always a good time to sell. So the decision really has more to do with you and your business than anything else. With that said, if you determine you are ready to sell, then 2020 is shaping up to be a great year to accomplish that goal.

So then how do you determine if your business is ready to be sold? That’s a topic for another article that you can read here, but please contact us to arrange a time to talk or meet and we can discuss your business. We’re happy to provide you with a no cost, no obligation business valuation and help you understand the value drivers and detractors of your company.

When you’re armed with all of that information, you’ll be much better equipped to make the decision if 2020 is the years to sell your business!