In uncertain economic times, the prospect of selling a business might seem counterintuitive. However, there are compelling reasons to consider this option, even in a market downturn. This article aims to demystify the notion that selling your company in an uneven financial market is a bad idea. We’ll explore the factors that in many circumstances can make this strategy advantageous, including a) the availability of well-capitalized funds and buyers, b) the buyers’ necessity to grow through acquisitions, and c) the scarcity of comparably-positioned companies on the market.
A. Complementary Growth through Acquisitions
In times of economic uncertainty, organic growth may slow down for many businesses. This is where “inorganic growth” – i.e. acquisitions can come into play as a powerful growth strategy. By acquiring complementary businesses, companies can diversify their offerings, expand their customer base, and strengthen their market position. As a result, businesses that are strategically aligned with potential buyers become highly sought after.
A Case in Point: European Luxury Property Platform Acquires Localized Competitor
Growthink facilitated the acquisition process of a distinguished luxury property rental platform in Greece. This acquisition presented a strategic opportunity for the buyer, a prestigious European luxury tourism group, to integrate the platform’s offerings and thus acquire a strong position in a high-demand market. The due diligence process and negotiation culminated in an enterprise value equivalent to an outstanding multiple of 12.5x Adj EBITDA. With such a maximized valuation, the seller secured a noteworthy 20% increase on the first Term Sheet, while minimizing deferred earnouts. This case exemplifies the critical role that a company’s strategic positioning plays in during synergistic acquisitions.
B. Buyers with Substantial Capital
Despite a possible market downturn, data shows that buyers such as large corporations or private equity firms are well-capitalized buyers, and are actively seeking investment opportunities. With ample resources at their disposal, they are poised to make significant acquisitions. And when target businesses align with their strategic objectives, they are willing to pay a high premium.
A Case in Point: Dairy Company Strategic Acquisition
An illustrative example is the acquisition of a Southern California Dairy Company by an International Food Conglomerate. Facilitated by Growthink Capital, the competitive sell-side process attracted 9 Letters of Intent (LOIs), ultimately resulting in a transaction value that exceeded by 47% the asking price.
What these numbers don’t capture is the sacrifice the founder and his wife made over many years to build this company, keep it afloat and keep hundreds of people employed along the way. There were many twists and turns, and many hard days. He sadly passed a few years ago and so did not live to see this successful conclusion for his wife, daughters and grandchildren. His family is now financially secured for many generations to come and it’s truly gratifying to have played a role in achieving this outcome for them.
The strategic positioning of the Dairy Company in the multicultural North American consumer market has proven critical to strengthen the buyer’s position in a rapidly growing market that is gaining space in mainstream consumption.
C. Scarcity of Healthy, Uniquely-Positioned Companies
Another compelling reason to consider selling in a market downturn is the scarcity of available companies on the market. Many business owners may be hesitant to sell during uncertain times, creating a shortage of quality acquisition targets. This scarcity can drive up the value of businesses that are available for sale, making them even more appealing to potential buyers.
A Case in Point: Private Equity financing of Lithium-Ion Battery Recycling Platform
A global Private Equity fund has invested an eight figure sum in a Recycling Company that reclaims and supplies critical materials for the battery industry. With the aim of developing a leading Lithium-Ion Battery Recycling Platform, this is a prime example of a deal benefiting from the scarcity factor. The extremely high valuation received by the Recycling Company, based primarily on its market opportunity not its historical financials, is a testament to the massive economic value of positioning companies within extremely fast-growing market sectors.
Selling a business in a market downturn presents a unique opportunity to leverage well-capitalized, eager buyers, benefit from the scarcity of healthy, suitable companies, and pursue strategic buyers that can achieve growth through synergistic acquisitions. These success stories underscore the potential for substantial gains even in challenging economic climates.
Waiting for more favorable market conditions might seem like a prudent move, but it’s essential to acknowledge that there may never be a “perfect” time. There will always be some form of economic uncertainty or industry shift on the horizon.
Ultimately, recognizing the value of your business and seizing the moment can lead to financial security and a legacy that transcends generations.
The successes above also stress the pivotal role a trusted advisor plays in turning opportunities into resounding high-premium transactions. Experienced advisors bring invaluable expertise, industry insight, and a network of potential buyers. A well-structured process is paramount in maximizing transaction value, particularly in challenging market conditions, and setting the stage for a seamless transition. If you’d like to learn more about exit opportunities or get a complementary market valuation of your company, please contact us here.
Written by Antonio Barzagli