Prepare your business to command the high end of market multiples being paid
Like trying to time when to buy and sell in the stock market, the same timing challenge applies to selling your business. The last few years we have experienced very high exit multiples being paid for all types of businesses. Now as economic and global uncertainty continues to grow, this is putting downward pressure on the exit multiples that strategic and financial buyers are willing to pay. This is because acquirers factor risk into their valuation and currently they are seeing growing risk in making acquisitions due to general market factors.
What we tell our clients is that although you cannot control what the market is doing and how it’s impacting the range of exit multiples being paid in your industry, what you can impact is where your particular business will fall within the range when you want to exit. As an example, let’s say the range of exit multiples in your industry had been running at 7x to 9x the last twelve months of company profitability and now with growing market uncertainty, acquirers are lowering the range to 5x to 7x. What your plan should be is to ensure you are prepared to present a business that warrants an acquirer paying you the high end of the range, even surpassing it, even though the range itself has decreased.
You can command the upper range of the market multiples being paid by ensuring that you present a company with good year over year financial performance, strong visibility and prospects for future growth, a unique value proposition offered versus competition and an organization the acquirer will find attractive. Building a business like this takes time and doing so will ensure you are rewarded at time of exit with a premium to the market multiples being paid. Use time as a friend now to prepare your business for making you personally and professionally euphoric when your exit day occurs regardless of what’s happening with the market dynamics around you.
