InSight

Exit and Growth Strategies for Middle Market Businesses

A Likely Scenario for 2011

By John Hammett | Feb 01, 2011

During stable market conditions, most private company deals are valued between four and six times trailing earnings.  However, the overall supply of companies for sale and demand for acquisitions from financial and strategic buyers plays into the valuation of transactions.  Clearly, the $3.2 trillion (yes, trillion) capital from investors, lenders and corporations will drive demand.

This is good news for company owners who are slowly re-entering the market to sell their companies.  With capital overhang that exceeds two years of historical investment, multiple buyers with substantial resources will be bidding for companies to acquire.

The extra good news is that this kind of supply – demand imbalance creates a “seller’s market” where, at least in the early stages, more money will be competing for the few sellers that come into the market early in 2011.  The historical data of the most recent seven years shows that deal multiples rise as deal flow increases.

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Posted by John Hammett


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