Friday, May 29, 2009

Is now a good time to sell a business

I was invited to be a guest on the Business Insanity Radio show hosted by Barry Moltz. Below is a brief recap of the topics we covered during the show and click here to listen to a replay.

Given the shaky economy is now really a good time to Sell a Business? Now may be a great time given the sheer number of buyers in the marketplace right now. The number of buyers we are working with compared to the same period last year is up by a factor of three. If your business has solid fundamentals and you have plan, this is the time to talk with a professional intermediary. For example, our firm currently represents a B2B services business that has had flat sales the past two years and slightly fluctuating cash flows. This business has received five offers and this should result in an attractive exit for the owner.

How are you finding the buyers? We are dealing with strategic buyers and individual investors. The strategic buyers see a great opportunity to grow market share and top-line revenues. Individuals, largely the unemployed masses, are looking to replace an income and use this opportunity to gain some control of their careers and futures.

How are deals getting financed? Financing has become our biggest challenge but it may also be an opportunity for sellers. On the challenging side, the banks have almost completely withdrawn from the business acquisition lending market. Many of the banks have made their underwriting requirements so onerous that the bankers are not even bothering with these types of loans. In addition, the SBA implemented an SOP change that went into effect March 1st. It limits the amount of goodwill in a business acquisition loan to a maximum of 50% of the total loan, or a hard cap of $250k, whichever is greater. With our large service-based economy most of our deals easily eclipse the SBA benchmark and, as a result, the banks do not want to deal with these opportunities.

On the positive side, this is an opportunity for the sellers to gain control of their deals by offering seller financing. While there are risks associated with this financing strategy, there can be significant upside, for example: interest rates of up to 10 percent, a first secured position, deferred and potentially lower taxes, and faster transaction times. It is worth saying that the right advisors, with actual experience with seller notes, are imperative to ensuring a good deal for all the parties.

With the right plan and the right advisors, now might be a great time to exit the business.

1 comment:

Barry Moltz said...

Thanks for the call out! It is is a tough time but deals are getting done!