Inc.com recently published an article that I found fascinating because it outlined the reasons why now is a great time to buy a business. I thought I would share some key points from it because it points out why this is a prime time for any of you planning to exit in the next 12-24 months to likewise find a motivated buyer.
So why is NOW a good time to buy a company?
According to Inc.com, business owners need to be aware of three key buyer motivations so you can use them to your advantage as a seller:
The first reason is very clear: the sheer number of baby boomer business owners that will be retiring and selling their companies in the next 10-15 years is stunning. And the pace will only accelerate as even more decide to cash out because the pandemic has taught them that no matter how prepared your business is, stuff happens that is beyond your control.
As we have examined before, about 60 percent of the 15 million privately held businesses in the U.S. are owned by business owners born before 1964.
If you are a baby boomer business owner, let that statistic sink in for a moment.
60 percent of 15 million is 9 million. Eventually, all 9 million businesses will need to transition to new ownership as their baby boomer owners retire and move on. For the sake of our discussion, let’s assume that 50% of these 9 million either close the business, sell to their employees, or pass the company on to their children.
That leaves a staggering 4.5 million that will need to transition to new owners via an M&A event over the next 15 years or so. Again, keeping the math easy, that is roughly 300,000 that will need to find buyers per year.
And this data was from pre-pandemic research. It is clear that many, many baby boomer business owners will move their retirement plans up now.
So, where you want to be in this timetable? As close to the front as possible before the supply is greater than the demand. Dust off your exit plans now because post-pandemic, there will be a buyer boom (see reason three above).
Sociologists and economists are both predicting that once the pandemic ends, and a significant portion of the population is vaccinated, we may experience an economic resurgence not seen since the roaring ‘20s. There is simply so much pent-up demand, so many folks that have been idled on the sideline, that the economy will boom, making it a great time to exit your company for an optimal value.
And finally, as we see in Inc’s second point above, the really good news is that there is ample financing available for buyers to make acquisitions. This recession we are moving out of is not like the Great Recession of 2008-2009, which was driven by a financial crisis. This recent recession was caused by a near-total shutdown of our economy due to a health emergency. Financing was ample before and, thanks to multiple Federal government programs, will be even more readily available going forward.
Just one example: The Consolidated Appropriations Act, passed in December, authorized the Small Business Administration to make key changes to its 7(a) and 504 loan programs, which may make it easier to acquire a business, says Lynn Ozer, president of MultiFunding, an Ambler, Pennsylvania-based advisory firm.
In addition, private equity is sitting on $1.7 trillion in dry powder which all needs to be invested soon for their limited partners.
The time to act is now.
The longer you wait to move forward on your exit journey, the greater the risk that you will be exiting at the end of the baby boomer retirement wave. Let the admonishing from Inc.com apply to you as well:
So, if you're interested in buying, it's best to get your documents in order now.
And the same is true if you are looking to sell and exit – get your documents (and motivation) in order NOW!
If you find the entire idea of exiting your business daunting, worrisome, exhausting, and depressing, the good news is that Generational is here to help. We can guide you from beginning to the end and even through the post-close process via our professional teams:
If you want to find out how we can help you take advantage of an expanding buyer’s market reach out to us here:
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2021 Generational Equity, LLC All Rights Reserved
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