With the economy languishing in Canada, many business owners are wondering if this is the year to consider selling their business. There are five specific reasons why it would make sense to sell sooner than later.
There are many factors that determine a best timing for selling a business — the financial condition of the company, valuation, growth cycle, profit history, and the current market. Usually the best time to obtain the highest price occurs when sales and earnings are good and trending upward with a history of good performance. This gives buyer’s confidence in projected future earnings.
Value is dynamic and proper timing makes a big difference in the prices paid for business acquisitions. External factors such as the economy, industry trends, stock market volatility, competition, investor confidence, interest rates, and geopolitical considerations are cycles of constant change that impact value.
Internal conditions within a company also change. Often in combination with external factors, sometimes independent of those factors.
So how should you determine if 2013 would be the right time for you to sell your business? The following are five factors for Canadian business owners to consider.
(1) First, get a business valuation to determine what your business is worth in the current market. This is an initial step in determining if a sale would meet your objectives. You do not need to pay for a valuation. An Accountant or an experienced mergers & acquisitions professional can work with you in determining value.
(2) Understand that the current status of the mid market business market place in provinces like Ontario for continued prosperity and growth in the Province. The same applies for Alberta. We are going to pop up on a lot of radar screens as a place to relocate or expand for businesses. Ontario gained more residents than any other Province as the recession deepened in 2008 and early 2009 as job seekers migrated to one of the nations strongest labor markets. The Toronto metro area enjoyed the highest population growth than any other city in 2013 and has the highest number in Canada.
(3) Buyers in every category are looking for alternatives to traditional investment avenues. They are looking for stability, better predictability and control. Business acquisitions offer all of these and can also offer a better return than traditional investment opportunities, most of Canada is a prime target because of future economic expectations and long-term outlook.
(4) The capital gains tax rate is presently at a historic low. Therefore, business owners considering a sale should sell by before the Budget of 2014. This is a time considered to have the Small Business Gains Exemption change dramatically. The current Capital Gains Exemption allows every bona a fide shareholder the first $750,000 as tax free.
(5) Most importantly, even in our current economy, buyers exceed sellers and we have a robust small business exit market for now. The time will come when the flood of baby- boomer business owners ready to sell will outweigh the ready buyers.
Fueling the market are the different categories of buyers looking to put their money to work by acquiring profitable businesses in areas with a good economic future:
Early baby-boomer corporate retirees
Management-level refugees who have suffered a downsize who typically have severance pay or pension allocations to invest, and are looking to go into business for themselves. The stock market, or putting money in the bank, do not look attractive to these corporate refugees at this time in their lives.
Foreign buyers seeing Canadian businesses as investment opportunities while the dollar is valued lower against their own currency
30-something up-and-comers aggressively buying and building.
Strategic Buyers, both public and privately-held companies, are actively acquiring smaller firms as part of their strategy for quick growth and innovation. (Merrill Datasite – Dec 2013)
Investment Buyers, such as private equity groups, “are going down-market” (Merrill Datasite – Dec 2013) and are seeking add-on acquisitions in the lower middle-market for their investment portfolios.
Blue collar workers who have been layed off are also looking to “buy a job.” These tend to be smaller technical service companies.
If internal conditions, both business and personal, are right, 2014 is the time to consider selling a privately-held enterprise. We realize that the decision to sell is neither purely tax-driven, nor even a purely financial consideration. Business sales are usually motivated by personal factors.
However, because it can take anywhere from 6-12 months on average to sell a private company, we suggest that business owners considering a sale prepare now so they can take advantage of this exceptional, impermanent window of opportunity.
With all categories of buyers in play, historic low interest rates with the government working to make credit more readily available, the capital gains tax rate the most favorable in 40 years, and the positive future outlook of the Canadian economy, it appears to be an excellent time for business owners in Canada to explore their opportunities for exit.
By: Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation. Mercantile is a mid market M&A brokerage firm. Contact Mark at firstname.lastname@example.org or www.mercantilemergersacquisitions.com