Often in business, chaos brings opportunity. COVID-19 rattled many companies, forcing many business owners to shut their doors and many other to consider retirement. A large portion those who entertained the idea of selling chose not to because they were afraid that disruption from the pandemic would reduce their profit from the sale. However, despite the reluctance of many owners to sell, there is a significant increase in the number of investors looking to buy quality businesses. This demand, coupled with a favorable lending environment and potential tax increases looming, make this a great time to sell a business.
Buyer Demand is Way Up
In previous articles, we mentioned the increased demand for businesses that started to become evident in the 3rd quarter of 2020. This is partially due to investors looking to purchase pandemic-proof companies. The businesses that not only survived the wave of business closures, but also thrived, drew the most interest. However, buyers who were not able, or willing, to pay the premium on these businesses looked for value in other companies. Valuations on many businesses in this second tier went up as demand increased and supply remained low because many owners remained reluctant to sell.
Borrowing Money is Easier
A favorable lending environment has also contributed to the recent increase in demand for existing businesses. Interest rates remain low and the Fed plans on keeping them low. The SBA is also lowering lending requirements and is offering incentives for anyone who wants to buy an existing business. The incentives offer big savings for anyone looking to borrow money, which increases the number of financially qualified buyers looking to purchase a business. While this is great news for anyone looking to sell a business, it only apply to deals closed by September 30, 2021. If you are on the fence about selling, you must move quickly to use this to your advantage. Demand will likely remain high after the deadline, but there may not be as many qualified buyers out on the market.
Abundance of Available Capital
Another great reason to sell right now is that there is a lot of available cash for deals. Private equity firms are very active right now and have a record amount of uninvested capital. Because of this, they are more willing to make investments now that they would have avoided a few years ago. Family businesses are strong candidates for outside investment right now. Despite a pull-back in new investments at the beginning of 2020, the 3rd quarter of the year saw them return to the market with an eagerness to invest in new assets. Not coincidentally, this is the same time that the demand for existing businesses started to rise again. Even business owners who are not ready to completely divest their companies right now, or cannot sell for what they were hoping, could find opportunities with private equity firms. If you can’t fetch your desired asking price, chances are you will still have options in the form of partial buyouts, equity rollups, earn-outs or seller financing.
One of the most financially practical reasons for selling right now is the pending tax increases this year. With the government looking to raise corporate and capital gains taxes to pay for post-COVID infrastructure plans, the differences in selling a business in 2021 instead of 2022 could be huge. If the value of your company is high enough, it’s possible that your tax burden could almost double. Take this opportunity to consult with a business broker to see if you can benefit from the current market conditions.
Even if your business is still trying to bounce back from the pandemic, the economic circumstances make this a great time to sell a business in Southwest Florida. Obtain a business valuation to get a clearer picture of how much you can potentially profit from the sale. Corporate Investment Business Brokers (CIBB), headquartered in Fort Myers, has been helping business owners maximize the return on investment from the sale of their businesses for 35 years and counting. Contact us to get a free consultation and business valuation and see for yourself if right now is the right time to sell your company.
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