If you have opened the newspaper over the past week, there is a good chance you have seen two things with respect to the economy: first, the Fed announced that there will be no interest rate hikes and, second, there is expected to be continued economic growth. While I will leave it to economists to conduct a thorough analysis of the short-term and long-term implications of these pieces of information, practically, this means that if you have been thinking about selling your small to midmarket business, now is the time.
Not surprisingly, mergers and acquisition activity came to a near complete halt in 2008. Since mid- to late- 2010, however, activity in the mergers and acquisitions market has been slow and steady with a few peaks and valleys during that time period. In recent months, however, buyers are eager to buy. They can fund a purchase – they have cash; and, it’s cash that is not earning any real money. And, to the extent they do not have sufficient cash on hand, they are able to get money cheap. The availability of cash is not a new phenomenon. However, the projected economic growth coupled with the available cash is. With this projection of continued economic growth, both strategic buyers and private equity funds are looking for strong businesses in order to capitalize on the potential market opportunities. These potential buyers are also willing and able to funnel money into target businesses in order to fund expansion projects that may be a bit riskier and more costly than you may want or desire to consider.
If you talk to any investment banker or private equity fund, they generally all say the same thing – the market is full of ready and able buyers, but there aren’t enough sellers. In other words, it’s a sellers’ market. For those buyers that have found good targets, they’ve often paid a premium (and some would even argue a substantial premium).
Although capital rates gains increased in 2012, there is no indication that these are likely to decrease in the near future. Further, the federal estate tax is at an all-time high and, in an effort to remain competitive, several states have very recently increased their estate tax exemption rates; so, with proper planning, you may be able to benefit from these advantageous rates if you do monetize upon a sale.
Needless to say, if you have been toying with the idea of exploring a sale, now is the time to seriously consider putting your business on the market.