Can You Get a Top Price for Your Business In a Down Economy?

You didn’t get to be the owner of a successful private company by following the crowd.  You instinctively found opportunities to prosper within every crisis you faced.  Now, you are considering selling your company to perhaps, spend more time on Cape Cod or restoring that ’55 T-Bird that’s been collecting dust in the back of the shop for years now.  But, with the economy in the shape it is, doubtless best to put any plans of selling on hold for awhile until things turn around. Right or wrong?

Good News
Our experience selling businesses more than 2,000 businesses over almost thirty years through the best and worst of times is that private companies’ valuation methods do not change during a recession. In fact, a down economy might be the best time to sell a good company!

Here are some of the reasons why:

• Savvy individual and corporate acquirers understand that the best way to grow is through acquisition of profitable companies that will help their core business prosper.  They realize they must take advantage of an opportunity when it’s available or risk losing it altogether.
• Fewer profitable companies are on the market in poor economic times primarily because business owners who, under normal conditions, would be selling their businesses are deferring a sale because conventional wisdom dictates that “you can’t get a good price in a down market.”
• Serious buyers are constantly in search of quality acquisition opportunities.  The number of Main Street and middle market business buyers increase as more and more people are laid off and/or outsourced.
• You can get tomorrow’s price today for your business if you choose a buyer who recognizes the opportunity your business represents and considers expectations of future profitability when assessing value.

In order to obtain an optimum price for a business, regardless of the economic condition, one must attract the type buyer who will recognize the opportunity the business represents.  In real estate, optimum value is determined by the entity that will recognize highest and best use of a property.  Business prices typically reflect an acquirer’s perception of future earnings under their ownership. Therefore, the optimum value of a business is determined by the buyer who recognizes the most opportunity the business represents.  A business can be considered worthless to one yet be worth millions to another.

How to Identify Your Ideal Acquirer

There is no substitute for real world experience when it comes to differentiating between buyer types and determining how various issues surrounding your business and industry will impact their perception of value.  Public companies call upon their Investment Banker to obtain the pre sale intelligence required to make informed decisions.  Private companies can call upon their Business Intermediary to obtain the same kind of information.  The first step is to engage a Business Intermediary (Broker) who is familiar with the marketplace for your size and type business.  This professional will employ a two step approach to the process i.e.:

Step One – Provide you with:

• An overview of marketplace dynamics, a description of the different buyers, how they think and how their thinking impacts the value of your company.
• A summary of what buyers can be predicted to pay for your business,
• A list of recommendations both long and short term to enhance and increase your company’s value – in other words, be sure that a satisfactory outcome is obtainable before you bind yourself to a contract to sell.

Step Two – Once satisfied that you can obtain your price, even in a down economy, you authorize marketing efforts to begin.

• Marketing and Due Diligence materials are created and assembled
• Advertising and other marketing strategies are implemented to attract your ideal candidate
• You will know everything of importance about your candidate before they know your company’s identity
• Your business is sold at your price, typically with three or less exposures

In Summary:

Business pricing methods remain unchanged even in a down economy; fewer profitable companies are on the market, the number of serious buyers in the marketplace increases in a down economy, savvy business owner’s know Only the Right Buyer will pay the Right Price and; you should not attempt to sell unless you are sure you can get your price no matter what the economy.

Author: Theodore P. Burbank, FIBBA, CBI