InSight

Exit and Growth Strategies for Middle Market Businesses

It’s A “Seller’s Market” For Private Companies

By John Hammett | Oct 26, 2011

The Numbers Tell The Story

Owners who are waiting for “market conditions” or “value multiples” to improve before they take action to sell their companies are missing one of the best “seller’s market” I have seen in many years of dealmaking.

This is clearly demonstrated by the numbers on a company that we are selling right now.  Two company owners engaged us to sell the company that they started 25 years ago.  It is a good stable manufacturing company.  The company has sales of around $15 million that had been flat for the last three years, and it has Adjusted EBITDA of about $2 million. Their company is very typical of the kinds of deals that CFA represents.

The owners retained CFA to represent them on the first of July.  During July, we wrote the “book” on the deal and researched and identified  nearly 100 companies  in the industry as potential buyers  and we identified another 850 financial buyers (private equity funds that own portfolios of private companies) that we thought would be excited about this deal.

The results were…substantial.

   
We sent blind 1-page “Teasers ” to:  112 strategic buyers and 840 financial buyers.
By the end of august, we had received signed Non-Disclosure Agreements from:  27 strategic buyers and 118 financial buyers.
By mid-October, we received written bids from:  2 strategic buyers and 15 financial buyers.
The enterprise value of these deals ranged from:  less than 4X earnings to 8.1 times earnings.
Number of bids ? 6.0 EBITDA: 2 strategic, 4 financial

 
 
This is the highest level of response to a deal that my office (Minneapolis) has seen since 2007.  It is indicative of the demand for good, solid, well-performing companies.

Our perspective:  if you are planning to retire in the next  three years, the timing now is the best that it has been and that it will be for awhile.  We encourage company owners who are curious about the value of their company and the process we use to give us a call.  We are pleased to talk about ranges of values and the 25 Value Drivers we have identified that make a real difference when owners sell.

Download “The 10 Biggest Mistakes Sellers Make.”

Posted by John Hammett.

 


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