I have commented in recent eNewsletters about the strong market conditions. This month’s featured article that was penned by team member, Scott Densmore, quantifies activity on a national basis. Due to the strong Colorado economy, we are also seeing significant activity as demonstrated by the two transactions that we closed last week, and the significant pipeline of transactions in progress, including a full price, all cash, seven-figure Letter of Intent for a business that we have not actively taken to market.
If you are considering selling your business, or if you are working with a client that is considering selling in the near future, I would suggest that you consider starting the process now. One of the early steps in the process is determining a range in value for the business. Our team would be pleased to meet with you on a confidential, no-obligation basis, to get you started.
Now Is A Great Time to Sell A Business
According to the most recent MarketPulse Report, published by the International Business Brokers Association (IBBA), M&A Source, and the Pepperdine Private Capital Market Project, now is truly a great time to sell a business. Almost 40% of business advisors surveyed said that the current market is the best they have seen in the past five years, over 15% said it was the best they had seen in over ten years, and over 20% said that 2018 is the best year for selling a business that they have ever seen! It is clear from the chart below, that market sentiment is up in all sectors when compared to the same time last year.
Many things are contributing to the high prices being paid for appropriately positioned businesses. The economy is going strong, funding is readily available, and interest rates are still relatively low. These factors, combined with high business confidence, are providing major benefits to sellers in the way of higher multiples and more cash at closing.
Multiples in most categories remain high, with the largest rise seen in the $5M – $50M range transaction size. This category has seen its median multiple of EBITDA paid go from 5.4 last year to 5.9.
Cash at closing has increased across most categories, with businesses in the $5M – $50M range again seeing the largest change. Average cash at close for this category rose from 64% in Q2 2017 to 80% in Q2 2018.
Good times bring increases, but one increase that sellers are not excited about is the time it takes to close. It seems as though buyers are paying a premium, and they know it. Therefore, many buyers are taking more time in the due diligence process to ensure that they fully understand what they are paying such a high price for.
One of the best ways a seller can speed up the time it takes to sell is to have an experienced team of professionals assist them to navigate the process efficiently. If you are thinking of selling your business in the next three to five years, contact The FBB Group, Ltd. With 90+ years of combined experience, FBB is the team you’re looking for to value and market your business, negotiate the best deal, and close the transaction.
IBBA Q2 2018 Market Pulse
The majority of our business is derived from referrals. Please consider referring our services if you encounter a situation involving the potential purchase or sale of a business.
Ronald V. Chernak
Inspiring business relationships since 1982!
(originally posted in the September 2018 newsletter)