After a string of rough years and falling values for private companies, here's some good news: Now just might be the best time to sell a business that we've seen in quite some time.
Why? Jay C. Jester, marketing director of Audax Group, a Boston-based private equity and mezzanine firm, explains that many private equity companies and venture capital firms raised money for investment funds with capital-deployment time limits several years ago, and now the clock is ticking ever closer to midnight. "There's a ton of private equity with a fuse on it," Jester says. "You've got pent-up supply and pent-up demand coming together. There's activity in just about any sector you can think of." Of course, some sectors are hotter than others. Right now, telecommunications equipment and semiconductor companies are starting to fetch good prices again as those industries bounce back after having been down for years. For obvious reasons, companies involved with various aspects of security are hot -- home security systems, devices that control access to buildings, retinal identification. Many companies dominate various niches of the medical instrument sector, and as the population continues to age they'll command premium prices.
During the past several years, as the market stagnated, buyers eased their demands that acquisition candidates have at least $20 million in annual revenue -- in part because fewer companies qualified. More and more buyers are now willing to consider $10 million or even $5 million. Andrew Cagnetta, CEO of Transworld Business Brokers in Fort Lauderdale, Fla., reports that in the past five years individual buyers from around the world have started to check out businesses advertised by his firm on the Internet. They arrange to come here, and if they like what they see, they apply for a visa on that first trip, buy the business, and move here. Cagnetta cites Venezuela, Colombia, Canada, and Great Britain as some of the most common homelands of these new immigrants. In addition, says Phil Steckler, a principal with business brokerage Country Business in Brattleboro, Vt., a tight job market means that lots of downsized-out-of-a-job executives are looking for businesses to buy and run. Given the way private equity firms and their funds have multiplied, however, the odds are much better than they were five years ago that a buyer will be a company rather than an individual.
Even if you're not interested in selling your business right now, it's a good idea to put your company through a valuation process regularly (see "Judgment Day," page 69). You can even do a self-valuation; that's what Kelly Flatley and Brendan Synnott, owners of Bear Naked Granola, do quarterly (see "Maximizing a Company's Value," below). They would eventually like to sell a majority stake in their business, but because they're in no hurry, they can afford to wait for the perfect fit and the right price. Meanwhile they can hone their strategic plan and continue to grow.
By: Jim Melloan
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