Entrepreneurs always ask us, shouldn’t I wait to sell my business or is this still a good time? Of course, we can’t look into the figurative crystal ball but we always have good advice based on our years of experience. Five reasons to sell your business in 2020
- Your business has flourished in recent years
- The first cracks seem to be appearing in economic growth
- Both strategic buyers (competing) companies and private equity are very active as buyers
- Prices are high due to an oversupply of available capital
- Your personal agenda has other priorities than being on the business 60 hours a week
Your business has flourished in recent years
Past results do not guarantee the future, but the average buyer does not set his price solely on future expectations. He also looks at the past. If your company has shown nice growth and healthy margins over the past three years that translates into a good price. This is especially true if growth prospects are also good.
The first cracks seem to be appearing in economic growth
In our practice, we unfortunately see more entrepreneurs who decide to sell their business too late than too early. If the business shows great forecasts this translates to a good deal in the price. If profits stabilize or even decline, the best time to sell has actually already passed. And profits are unfortunately not 100% in your control as an entrepreneur: economic growth is an important driver for almost all entrepreneurs. And that economic growth is starting to show hairline cracks: in the Netherlands, among other things, due to impediments to construction and infrastructure projects, but also due to higher wage demands and scarce personnel in various sectors. Interest rates are already showing that economists expect growth to weaken: you pay more to borrow short money; long-term interest rates are already lower than short-term rates. Economists foresee a downturn at the end of next year or in 2021. If a sales process takes 6 to 9 months it is recommended to start it no later than early 2020!
Both strategic buyers (competing companies) and private equity are very active buyers
Two years ago, the market seemed “taken over” by financial buyers/private equity (read here). Meanwhile, strategic buyers are making a big splash. This latter buyer group seems to have accepted that price levels have risen substantially and is willing-just like private equity-to offer a good price. A new product-market combination or a new geography is often best realized through an acquisition. Building the business yourself as a greenfield often takes longer, is (even) more expensive or is not possible at all. The fact that the takeover requires a large outlay is then accepted. In a market where different types of buyers with different synergy potential are bidding against each other, the seller is ultimately the laughing stock.
Prices are high due to an overflow of available capital
That said, Private Equity still has a large war chest available. Due to low interest rates, institutional investors like pension funds are looking for asset classes that do provide positive returns for some of their assets. This pension money partly ends up in private equity funds, which have seen their investable assets increase dramatically in recent years. This capital must largely be invested within a period of seven years, so that after about ten years the money -with returns- can be returned to the pension fund. This puts considerable pressure on private equity to invest the money in companies. Beautiful companies with good results can count on warm interest from financial investors.
Your personal agenda has other priorities than being on the case 60 hours a week
Of course, a good price is essential to a successful sale. However, many of our clients also have other motivations for selling. We all know the entrepreneurs who never consider a sale: the business has also become a way of life. However, many entrepreneurs also make other considerations. One wants to spend more time with family or simply retire (early). Often there are other entrepreneurial opportunities that one wants to work out and time should be set aside for that. But it may also be that the size of the business simply no longer fits the competencies of the entrepreneur. Entrepreneurship then becomes less and less fun and brings with it the necessary entrepreneurial worries.
In short, both financial and personal reasons can be reasons to sell the company in 2020. Can you identify with the situations described above? Are you considering the possibility of selling your company in 2020? Feel free to call us for an informal discussion.
If so, please call Clifton Finance:
Gonneke van der Lee +31 6 52466518 or Maarten Vijverberg +31 6 55853074