The latest economic slowdown may have caused some business owners to re-examine their current exit strategies. With overall valuations down to around 3-5 times last twelve months EBITDA and fewer companies seeking acquisition targets, many owners feel that it's best to ride out the storm and wait until business conditions improve before they sell. While caution is warranted, there are actually many reasons why selling a company is still a viable, even potentially lucrative option.
By historical standards, there has been tremendous acquisition activity in the plastics industry over the last few years. Due to the recent economic slowdown, the pace of activity has slowed, yet it remains well above historical norms, indicating that there are still many buyers looking for strategic fits. Many companies that sat on the sidelines, unwilling to pay high multiples, are now entering the marketplace in search of good deals with cash to spend.
Profitable, well-run companies will always be targets for acquisition. Having an established customer base, a good business model, with corporate profits and competent management attracts a higher valuation even in a depressed market.
The completion of the sale of a company can be extremely time consuming, and preparing for that process during a market downturn can actually have added benefits. Advanced planning can position a company to capitalize on market upswings and unique selling opportunities. Planning for a company sale also prepares the owners to better manage the business should the market downturn continue. When economic downturns last longer than expected, many smaller manufacturers are forced to sell out or merge with others to survive. By being prepared, a company can immediately go to market and find the right buyer or strategic partner.
It is important to remember that even in challenging times there are opportunities for selling a business. Seeking professional advice is always recommended to better manage the sales process, find the right buyer, and negotiate the best possible price. In addition, retaining an advisor allows owners to focus on the day-to-day operations of the business while pursuing a profitable exit strategy.
Chung is director of adviser services with U.S. Business Exchange Inc. of Santa Monica, Calif. Next in the series: "Increasing the value of your plastics business."