BUYING OR SELLING A BUSINESS, HOW MUCH IS IT WORTH TODAY?
A pandemic, restriction, forced closures by local, provincial, and federal governments, supply chain disruptions, competition, health, safety, employee, and cash-flow challenges have sapped many entrepreneurs of their passion.
The economic, political competitive and technological environment has changed the way business owners think about their businesses. There seems to be heightened interest from private company owners ready to exit their businesses.
Owning a business has always carried with it responsibilities that caused considerable stress. The last couple of years have put additional strain on the mental well-being of business owners in several industries. Sapping entrepreneurial energy and dousing the passion that many entrepreneurs have had for their industry and their businesses.
Baby boomers are entering the last few years of their careers – they would have been more than ready to sell their business and retire. Unfortunately, not many of these boomers could have predicted the events of the past year and how it would impact their lives.
In addition to those who want to get out because business has taken a downturn, some people have had their best business years ever. Their businesses boomed because of the same external and internal events, and there is no better time to sell your business than when your projected ongoing and continued profitable growth.
Historically lower-middle-market business sells for slightly over 3X their EBITDA. Yet in the last quarter of 2020 and the first quarter of 2021 companies are selling at unheard of higher multiples.
Several factors affect company values:
1. the most important being the past and future profitability of the business and the value of its tangible and intangible assets.
2. In addition to profits, buyers look for the ability to grow existing products into new markets and or introduce additional products to existing markets.
3. Beyond growth opportunities, buyers will want a company that is not reliant on the owner for its success and has a culture, aligned management team, strategy, and structure in place to continue to protect and grow the business going forward.
4. Lastly, companies anticipating economic fallout from the global coronavirus pandemic have an accumulated war chest of more than $7.6 trillion in cash and marketable securities, while interest rates remain at record lows.
Optimistically, Mergers and Acquisitions transactions did get completed during a tumultuous and uncertain environment, the deals that did close are testament to not only the dedication and focus of all parties involved but also proof those essential businesses with good fundamentals are well-positioned and attractive investment opportunities and that new blood can invigorate businesses to continue serving customers long after the original owners are happily retired.
To learn more about business valuation get the free Business Valuation Guide
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