Is now the best time to sell your business?
When the GFC hit ten years ago and global markets tanked, many people lost a huge chunk of their retirement savings. Corporate valuations halved, profits slumped, banks tightened their lending requirements and liquidity dried up overnight.
Many business owners who were eyeing an exit simply could no longer afford to retire and were then unlikely to realise the kind of gains required to fund their retirement from the sale of their business. Many simply had no choice but to keep working and hope for better times ahead.
Now wind the clock forward 10 years to the present day and the sun is shining once again.
At a high level when we look at the market we see that global corporate valuations have now returned to the pre-GFC highs (All Ordinaries again trading well above 6,000), retail investors have capitalised on a decade long bull run and corporate profits across many sectors are up on historic levels. To further sweeten the current dynamic, interest rates are at all time historic lows so borrowing money to fuel growth or make an acquisition has never been cheaper.
By reviewing the above all ord's chart its clear that corporate valuations have improved considerably since the lows that followed the GFC. Given that private company valuations often utilise adjusted public trading multiples, at a high level, we can also expect SME valuations across the majority of sectors will have also increased significantly.
When is the best time to sell?
The answer to this question will naturally depend on your individual motivations and financial situation however from a purely financial position the answer must certainly be when valuations are at the peak of the cycle?
Using the All Ord's as a proxy for the SME market would suggest that valuations are the best they have been in 10 years, however all business owners should carefully consider the graphic below.
Industries and their sub-sectors go through valuation cycles driven by demand from acquirers (industry and private equity) and movements in multiples of comparable listed companies. The price or “P” your industry is attracting in the market will therefore vary.
Business owners traditionally tend to focus on building business value by concentrating on their earnings or cashflow, i.e. their “E”. Most business owners however are unable to appreciate the overall valuation picture… their “PE” ratio.
BSP Strategic has access to valuation and transactional data across a wide range of industry sectors and can help you to understand whether sectors present:
Vendor divestment opportunity (business sales) – within sectors that are hot.
Acquisition opportunities – within sectors that are cold.
Capitalise on substantially improved market conditions and contact us today to learn more about how your sector is tracking in the current market. With just 5 weeks until the end of the financial year - now is an excellent time to review your position.