Timing is one of the most important factors in achieving a successful company sale or divestiture. So how do you know when the “best” time to sell occurs? The best time to sell a business is when you have no need to do so, when the company has demonstrated solid performance and the future looks bright. You should also rely on your investment banker, who can provide insightful information regarding market trends and assist in judging the best time for you to sell based on your situation.
Buyers are attracted 5 Ways to Prevent High Inflation in Your Business to a successful track record. Further, buyers are attracted to perceived future upside. You should not be overly concerned about leaving this future growth for the buyer as you will get compensated for it through the premium paid. Bottom line: Sell a business when things are going well and the future is promising.
There are five primary factors to consider as you are thinking about timing the sale of a business. Rarely do all these factors peak simultaneously, so judging them on a relative basis is important. However, timing a sale when the general momentum is in your favor improves your odds of achieving a high price. The five items to consider include:
1. Macroeconomic Conditions: A stable or growing gross domestic product, relatively low inflation and low interest rates provide fundamental support to a healthy economy, confidence and deal making.
2. Industry Trends: Positive underlying trends, such as a strong growth cycle, related to your company’s industry often correlate with heightened levels of acquisition activity and high purchase prices.
3. Company Performance and Prospects: The ability to credibly demonstrate a successful historical track record of earnings along with bright future prospects will generate the most interest from buyers. More interest from buyers often leads to competitive bidding, thereby providing the leverage to achieve the highest price.
4. Capital Flows: When there is an abundance of capital from strategic buyers, financial investors and lenders competing for deals, the market becomes very liquid, sometimes frothy, which fuels transaction activity and high valuations.
5. Merger and Acquisition Activity: An active merger and acquisition market is the manifestation of the interworking of these factors and signals that deals are being completed at compelling prices.