How much is your business worth today?
Economic, political, competitive and technological shifts — along with the pandemic's supply-chain, health, safety and cash-flow strains — have changed how owners think about their businesses, and many private-company owners are now ready to exit. Baby boomers nearing the end of their careers are especially primed to sell and retire. But not every seller is leaving on a downturn: some businesses had their best years ever, and there is no better time to sell than when continued profitable growth is projected.
What is a business worth today?
Historically, lower-middle-market businesses sold for slightly over 3x EBITDA. Yet in the last quarter of 2020 and the first quarter of 2021, companies sold at unusually high multiples as buyer demand surged.
What factors affect company value?
1. Profitability and assets — the most important factor is the past and future profitability of the business, plus the value of its tangible and intangible assets
2. Growth opportunities — buyers reward the ability to grow existing products into new markets or introduce additional products to existing markets
3. Owner independence — buyers want a business that is not reliant on the owner, with culture, an aligned management team, strategy and structure in place to protect and grow it
4. Buyer firepower — buyers hold an accumulated war chest of more than $7.6 trillion in cash and marketable securities, while interest rates remain near record lows
Mergers and acquisitions continued to close through a tumultuous, uncertain environment — evidence that essential businesses with strong fundamentals remain attractive investment opportunities and that new ownership can reinvigorate a business long after the original owner retires.
Key facts: what is your business worth today?
Historical lower-middle-market multiple: slightly over 3x EBITDA; late 2020 and early 2021 saw unusually high multiples
Top value driver: past and future profitability plus tangible and intangible assets
Buyers also reward: growth into new markets/products and businesses not dependent on the owner
Buyer dry powder: more than $7.6 trillion in cash and marketable securities, with interest rates near record lows
Best time to sell: when continued profitable growth is projected
Disclaimer: This article is for general informational purposes only and does not constitute legal, tax or financial advice. Consult qualified advisors regarding your specific circumstances.
