Is this a good time to sell my company?
2016 ended up a pretty good year for sellers in mid-market M&A transactions. But the year didn’t start out that way: Through the first 6 months, there were fewer deals closed than in any year since the recession (2009), but they were of a larger size, since the deals by value were higher than 2012 and 2013. By the end of nine months, those trends hadn’t changed. For the full year, however, Merger Market (as reported in Forbes) found that 2016 deal volume and deal value was slightly up from 2015, which itself was about 20% above historical average, even though 2014 remains the blowout year since the recession. On a per-deal basis, Merger Market estimated that prices were up about 2.1% in 2016 over 2015.
All of which points to a seller’s market as 2017 begins.
With the results of the U.S. presidential election, and the S&P 500 up 10% since the beginning of November, odds are the seller’s market will continue in 2017. Indeed, as reported in Mergers & Acquisitions, Rob White of M&T Bank pointed to several factors that could lead to high multiples and attractive valuations: strategic buyers, especially public companies, amassing cash on their balance sheet and looking for growth, the continued evolution of private equity and other institutional capital, and the growing influence of direct investment by family offices all adding to demand. Mergers and Acquisitions reported in February that private equity funds raised $345 billion globally in 2016, just about at 2014’s post-recession record of $348 billion.
Mitigating those factors, Citizens Bank, in their Middle Market M&A Outlook 2017 reported a general sentiment from their survey that valuations have reached a peak, Owner fatigue, especially in the lower middle market (up to $25m) may be contributing to urgency to get a deal done, nearly three-quarters of mid-market executives are currently involved in or open to making a deal in 2017, a 25% increase over the 2016 survey results.
Which seems to point to a continued seller’s market, at least as 2017 begins. So, what could go wrong?
Rob White points out that a continuing trend in the post-recession era has been a lengthening of transactions, as buyers become much more thorough with due diligence. For companies that are unprepared for the exit strategy process, without the necessary data and analyses to support a high valuation, that can auger considerable difficulty in successfully completing a transaction, and may find valuations not as high as expected. This is especially true in the lower middle market, where often half of the EBITDA is adjusted, and that often does not hold up through the Quality of Earnings process. The Citizens Bank report noted that even in the upper mid-market ($25mm to < $2B), only 63% of sellers felt they were prepared for sale.
This underscores what B2B CFO® has been advising clients who are thinking about selling their business: start the process of getting ready for sale early. Do an internal QoE review, and be prepared for the buyer’s due diligence, if you want to increase your chances for success.
 656 deals closed in the first 6 months of 2016, with a value of $122 billion, Mergers & Acquisitions Magazine, September 2016, p. 41.
 1,111 deals closed in 2016 through September, with a value of $200.0 billion, Mergers & Acquisitions Magazine, December 2016, p. 31.
What should I do now?
The first step in the process is gaining clarity about your goals. A B2B CFO® can help you work through your objectives and the alternatives to achieve them, and give you a rough idea what your company might be worth using our proprietary software, The B2B Exit® software.
The next step is to map out a plan to get your company ready to sell. A B2B CFO® is uniquely qualified to help you do just that. If you’d like to have a conversation on this, or anything else about your business, please contact me.