Why Selling Your Business in the Next Decade May Prove Difficult
Selling companies is no trite task. It can skill at all points along the value chain including, industry analysis, company valuation and seller farming. Such pieces of the puzzle completely ignore and exclude issues relating to company drama and general market fluctuations, which both tend to vex private companies. Moreover, demographic shifts are coming in the next decade which could have an erosive effect on the values of middle-market businesses. Here are some of the value-bursting effects that may dampen corporate valuations and divestment in the coming decade.
Understanding the full import and potential issues of middle-market deals requires a bit of a dive into private company supply/demand economics. United States demographics are shifting rapidly. With over 25% of the population within the “boomer” segment, there are an estimated 7 to 8 million businesses that will need to be sold in the next 10 to 20 years. Using simple supply and demand, it is easy to see that such a boost in supply may create negative pressure on private business value when it comes time to sell.
Additionally, the recent economic turmoil of 2008 forced many private owners to take their companies off the market when valuations plummeted. As values have begun to rise in recent years, the pent-up supply in middle market-sized companies is beginning to hit the market. Adding the pent-up supply of retiring boomers to this supply will most likely further depress company valuations. It ultimately makes for a very bad combination.
Many of the companies looking to be sold in the coming decade may find it difficult to transition the reigns of such businesses to qualified managers in the future. Shifts in workforce competitiveness among younger demographics who’ve not been able to find meaningful employment could further damage the ability for private companies to attract top talent and remain competitive in the future.
With the future deal closure rate possibly looking bleak for middle market companies, it may be helpful to understand how to mitigate the timing risks of selling a company. First, prepping the business for sale early in the process may prove extremely helpful as little will be required if the right buyer comes along at the precise time. Secondly, engaging with a strategic M&A firm can also be helpful when looking to close the deal more quickly and at a higher value.
Understanding the key components of the deal process is from a 30,000 foot perspective can be extremely helpful in avoiding the systemic market risks that can often play heavily into private company divestiture.