TIMING the sale or exit from a business is critical, and there are a number of factors to consider. These include the very important aspects of personal life-style changes and goals, as well as the continuity of the business, says George New, Manager, Horizon Capital Corporate Finance, a company that specialises in the sales and acquisition of medium-sized enterprises.
The prevailing business environment and stage in the economic cycle also play a meaningful role in the decision making process. While the local (and global) economy has been experiencing challenging and uncertain conditions over the past few years, business confidence is slowly starting to build, albeit at a slow pace. As a result the economic environment is stabilizing and momentum gathering. At the start of an economic upturn corporates are actively in an acquisition mode for a period of time, especially in the current low interest rate scenario, thereafter they tend to move into one of consolidation as the business cycle matures.
There are a number of reasons why it is currently a good time to consider selling your business.
With limited investment opportunities, and a high level of uncertainty over the past few years, potential corporate buyers are sitting on piles of cash. Many are now adopting an organic and acquisitive growth strategy as they strive to maximise growth and returns for shareholders. The economy is currently in its initial growth phase when acquisition activity is at a high level.
Presently the JSE is on a price.earnings of 17,3 which is well above the long term mean of 13,9. The earnings multiples of unlisted businesses are generally rated at a percentage of the earnings multiples of similar listed businesses. High JSE p.e’s therefore have a positive effect on the valuations of non-listed entities.
Sellers have been sitting tight and consolidating until market prospects are more promising. The supply of saleable businesses is small relative to the increased demand for acquisitions, which is pushing up the prices buyers are prepared to pay for good businesses.
These three factors contribute largely to a current ‘sellers’ market which provides a definite window of opportunity to maximise the return on the sale of a business.
As mentioned, when considering the sale of your business there are many factors that must be taken into account both from a personal and business perspective. Selling a business can be a very complex and time-consuming proposition with many legal, tax accounting and regulatory issues to address. Expertise is also required to seek and identify the appropriate buyer for a business and then negotiate and structure the most advantageous transaction for both parties involved.
The decision to sell could well be the most important decision a business-owner will make. It is vital that a qualified professional corporate finance advisor be appointed to guide you through the sale process.
George New explains that Horizon Capital offers a full turnkey solution for the seller – from assisting the owner to prepare the business for sale, conducting a valuation, preparing an Information Memorandum and discreetly taking the business to the market by introducing it to qualified potential buyers.
Very importantly Horizon capital negotiates on behalf of the seller to ensure the optimal deal structure, and a fair price, is realised. George adds that part of the service offered by Horizon Capital includes assistance with the drawing up of the sale agreement and supporting documents, as well as facilitating the transaction payment.