Should
You Sell Your Business In This Downturn?
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Global stock markets are down, investors are
on selling mode, and almost all of 2007’s stock gains have been
wiped out. The culprit, analysts say, is the current US
subprime lending problem. A number of hedge fund companies and
investment banks that invested in subprime loans incurred
millions of losses or even went bankrupt due to the subprime
lending problem. The possibility of tightening credit
conditions also caused volatility and panic in the US stock
market, which consequently sent fears to European and Asian
markets that US, one of their major trading partners, has now
entered the phase of severe economic recession. These fears and
uncertainties are responsible for driving world stock markets
to their recent lows.
The victims of recent downturn includes
complete collapse of Lehman Brothers, Merrill Lynch bank sold
to Bank of America, Federal takeover of Fannie Mae and Freddie
Mac, Moody's and Standard and Poor's downgrade ratings on AIG's
credit on concerns over continuing losses to mortgage-backed
securities.
There are many expert investment bankers who
are constantly in discussion with Private Equity Groups, Angel
Investors, Venture Capitalists, and Strategic and Business
Buyers. They all speak the same thing. They have money and they
are still looking for good opportunities. Yes, they may be
highly cautious and will take a little longer on due diligence
than they might have prior to the downturn. They may also
require more tripwires and covenants in the Purchase and Sale
documents but they’re still anxious to do business and mergers
deals. Those who invest with these Private Equity firms do so
because they expect to get a good return from the PEGs
investment in and purchase of good quality businesses. They
don’t want the Private Equity firms to sit on the sidelines
collecting management fees. This can work to your
advantage.
While you may feel that this is a lousy time
to consider selling your business, investment bankers suggest
you to explore it now if you’ve given any thought to a
transition sometime in the next 3-5 years. The process of a
business sale can take a year or longer and most acquiring
firms will want you and your senior management team to stay on
for a transition period of 1 to 2 years after closing and they
will provide financial incentives for you to do so (an “earn
out”). These earn out gives you, as the business seller, a
“second bite at the apple”. That is, if you grow the business
after the sale, even with the PEG’s financial support, you can
actually get an even higher final price.
No one knows when the present recession will
ease but, based on recent history; it’s likely that your final
exit will be enhanced as the economy begins to expand again in
18 to 24 months. Professional investment bankers are happy to
help you to consider and evaluate your opt ions in this trying
environment.
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