Selling a business is a momentous decision for any entrepreneur, involving both emotional and financial deliberation. It is not merely about the value offered by prospective buyers; timing plays an essential role. While the decision to sell or retain is ultimately personal, several persuasive factors indicate that the current moment might be as opportune as any to sell your business.
1. Recessionary Risks
Despite political and economic uncertainties and escalating trade tensions in 2019, the market performed robustly, indicating a predominantly seller’s market. However, markets typically react more negatively to adverse news than they do positively to favourable developments. Given the unresolved overarching issues, a recession, although not entirely imminent, is a conceivable scenario. Historically, buyers tend to withdraw until the situation stabilises, resulting in depressed earnings multiples due to prevailing uncertainty. As a business owner, capitalising on the existing acquisition multiples can maximise your return on investment at exit.
2. Entrepreneurs’ Relief
In the UK, the Entrepreneurs’ Relief policy allows business owners to pay a reduced capital gains tax during a business sale. Subject to eligibility, all capital gains on qualifying assets are taxed at 10%, presenting a strong incentive for a tax-efficient exit. To be eligible, entrepreneurs must be either a sole trader or business partner and own the business for at least two years before selling.
3. Ready-to-Invest Capital
A 2018 Bain Capital study revealed that globally, over $1 trillion of ‘dry powder’ (uncommitted institutional capital) is available to asset managers. Consequently, buyers actively seek attractive investment opportunities. This scenario can generate substantial interest in your business for sale. If your business is well-managed, the abundance of capital chasing quality opportunities could instigate a bidding war, with buyers competing in an auction process to submit acquisition bids.
4. Affordable Financing
Following the 2008 crisis, interest rates were reduced to stimulate economic activity among consumers and businesses. With near-zero levels, the only likely direction for these rates in the short- to medium-term is upwards. This is favourable for buyers, as it allows them to obtain debt financing at lower interest rates, increasing their appetite for your business due to reduced equity (i.e., their own risk) invested in each acquisition.
While hindsight is always clearer regarding business entry and exit points, several macroeconomic factors, current policies, and other considerations make this an opportune moment to sell your business if you are prepared to move forward.
At Verdani Capital, we provide fair business valuations while protecting employees and preserving founders’ legacies.
For more information and to obtain a business valuation, contact us.