Market Update: Current Factors Affecting a Decision to Sell Now

By Rick Gould, CPA, JD

1. Capital Gains Taxes are expected to increase.

2. Jeffery Lyons, an operating director of Chicago-based investment bank City Capital, said in INC. Magazine in November: “Economists estimate that as many as 70% of privately held businesses will be put up for sale within the next 10 years, as more baby boomers retire.” (Or maybe just want to monetize their assets and sweat equity.) “That mounting supply could put more downward pressure on valuations for years to come - a sobering message to entrepreneurs nervously waiting for the market to bounce back.”

3. Ten years from now, multiples will go down because the supply of businesses (for sale) will be up and there will be fewer buyers.

4. It is already a factor that sellers far outweigh niche buyers. Buyers are no longer buying to add critical mass or to increase net revenues. Buyers are buying strategically, looking for a specialty firms in the areas of digital, public affairs, consumer and crisis.

5. Buyers are increasingly more edgy when it comes to the age of owners, the presence of strong second-tier management, the mix of clients and the potential for cross-referrals and growth.

6. Tightening SEC regulations on acquisitions will only increase the amount and extent of financial reporting and due diligence required in the future.

7. The future reality is many sellers of PR agencies will have no one to sell to. They will have little choice but to sell their firms to key staff (for multiples less than they can potentially receive from an outside buyer) or to simply close doors and cease operations.

Only with industry-specific counsel can you decide what timing is right for your firm. These factors to consider are just a small part of what needs to be regularly analyzed in packaging your firm for a sale, whether today or in the distant future. Operate your firm as if you were to be sold tomorrow and you will have a better managed, more profitable firm overall.