Tuesday, August 10, 2010

2010 Fast Selling Businesses

It is no surprise that 2009 was a challenging year for business sales transactions. Most companies were experiencing sharp declines in revenues, customers and profits — not the sort of environment conducive to selling a business.

Before the economic meltdown, our firm had been forecasting that the large wave of baby boomers approaching retirement would fuel the business transaction marketplace, but those plans changed in late 2008 and 2009. The economy has altered those plans permanently for some of the unfortunate business owners who could not weather the downturn.

We had no reason to believe, given the weak economic forecasts, that the transaction markets would rebound in 2010. But rebound they did. We have experienced a very robust first half of 2010, with many of our transactions selling in record times with multiple offers. We have analyzed these business transactions and there were some key traits they share.

Seller financing: Banks are still not lending and buyers have few alternatives to fund a transaction. Motivated sellers have stepped forward with offers to finance the transfer of their businesses, and they are being rewarded for this approach. Seller financing has been the single biggest factor in securing a quick sale at a premium price. The earnings multiples these businesses are receiving are at least 20% higher than those received by businesses being offered with little to no seller financing.

Infrastructure: It is important that a new owner be able to work into a business that has a diverse client base, trained employees, documented systems and procedures and the capacity for growth. Buyers are flocking to businesses that are built with solid foundations and where the seller is not ‘the business.’

Recurring revenues: Businesses that have a certain amount of recurring revenue are garnering lots of attention. This structure is true in good and in bad economies, but it has been especially true in our current market. For example, we represented a business in which 70% of the revenues were recurring. The business was on the market for seven days and garnered nine offers.

Growth potential: Companies that have the capacity to grow with little or no capital investments are attractive. There’s an adage in our industry that “buyers pay for what the business is doing today, but they buy it for what it could be.” Every buyer wants to know that they can take the business to the next level and increase their ROI with little to no capital investment. These businesses can typically receive additional value in the form of a higher earnings multiple or future payments tied to the growth of the business. Businesses are selling in record times and at solid multiples of earnings.

If your business has some or all of the above traits then now can be a great time to go to market and maximize your value.

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