Before the recession, in the last quarter of 2008, there were term sheets being offered at a very high multiple of EBITDA. The market was strong; companies were doing better than ever. Companies were being sold for more than I can ever remember, especially the larger companies, making more than $5M EBITDA.
Some people were getting greedy, turning down offers for more than 6X-7X EBITDA. They thought that if they waited a little longer a better offer would come… and then the crash came. Immediately, companies’ numbers started dropping and the same company that had turned down a 6X offer for $15M ended up selling for $5M.
If you look at history, recessions happen every 7-8 years. Sellers should look seriously at their needs when they retire and to ask “Do I have enough to live on after the sale?” Are you prepared to hold on for another 4-5 years after another recession?
We have noticed that when doing valuations for companies, their financials began showing improvement on their taxes in 2013; and 2014 was even stronger. If you are nearing retirement, then once you have 3 good years showing growth, that is the best time to take action to sell your business. Of course, you need to be ready emotionally to sell and retire, as well as, financially be ready. Your stock broker would be a good person to assess your readiness.
Keep in mind, retiring from you company does not mean retiring from life. Many of our buyers start something simpler with fewer employees. Some have joined our firm after selling their firm. Three employees have done that over the years. Who is better to advise someone on selling their company than someone who has owned and run a business? Some do consulting, some travel and play more golf.
Now is time to start considering your future and getting things in order so when the timing is right you will be good to go. The first step is getting a valuation on your firm. The price of business valuations range from $750K for a Broker Opinion of Value to $6,000 -$10,000 for a larger stock sale grossing over $2M.
Let me know if Sunbelt can be of service to you. I am more than glad to answer any of your questions.
Joan Young, President of Sunbelt Business Brokers, Greater Bay Area
Sunbelt also handles Mergers and Acquisitions