TOO LATE TO SELL? NO!

Even before the Coronavirus crisis hit our families and economy, we were hearing from business owners that were fearful about going through another recession and were thinking about selling their business.

As Achim Neumann, President of A Neumann & Associates, LLC. states – “the Great Recession of 2008-2010 put many out of business and challenged a great many more just to survive.  With the economic expansion that followed over the next decade, many firms were able to recover and thrive to the point where they had significant value and appeal in the marketplace.  Those owners were also 10 years older and, also 10 years closer to retirement.”

Now, we are all trying to navigate Covid-19 and protect our families, employees and companies.  The bottom line is that we are now in that “other recession” that was feared and those older owners are asking themselves whether or not it is too late to sell and retire as they had planned.

For most, the simple answer is NO.  It is not too late.

While each business is unique and carries its own set of strengths and weaknesses, there are some prevailing market conditions that set this time apart from the 2008-2010 economic downturn.  First and foremost, this is an external health crisis that has severely impacted our economic foundation as opposed to the foundational economic/banking crisis that occurred a decade ago and destroyed businesses from within.

Even though Covid-19 has adversely affected everything about a business, it is important to keep these current facts in mind:

• The underlying economy has been strong, and most analysts feel that any recession will be short-lived with expansion returning to pre-Covid levels once vaccines and therapeutics are available. This is not to minimize the devastation.  Rather, it is to point out that if the company had a strong foundation with high demand for its products and services going into the health crisis, it should have a strong foundation coming out of it as well.
• Strong business valuations are being maintained so far in 2020. Even though consumer and corporate spending is severely down, many business owners have been forced to increase productivity, develop creative solutions and actually increase profit margins.  For the most part, current appraisals are treating 2020 as an aberration and “normalizing” financial performance accordingly.  Simply put, in terms of value, strong businesses are not being unduly penalized for a pandemic that was not of their making.
• Buyers and investors are plentiful and aggressive. As has been the case for the past few years, buyers outnumber sellers 5 to 1 and there is a tremendous amount of money on the sidelines looking for an investment home.  Individual buyers, complimentary organizations and private equity investors are all seeking historically sound profitable firms in strong sectors that have significant growth prospects.  This has not diminished in any way during this health crisis.
• Bank lending is widely available, and the credit markets are foundationally strong (in stark contrast to a decade ago). Interest rates are at an all-time low and SBA incentives are actually providing a tremendous opportunity for buyers to invest in privately held firms during this time.  The banks are in business to lend money for investment and with the full backing of the Fed, they are doing just that.

While there are striking similarities between the 2008 recession and the current Coronavirus crisis, it is critical to recognize the differences and how they affect a business owner looking to sell.

“Even though this current period has been extremely challenging (to say the least), retirement plans should not be discarded completely,” adds Mr. Neumann.  “The current environment for valuations, investors and bank lending provides a strong platform for exit strategies and business transactions.”

If you had thoughts of a sale of the company prior to March of this year and have gotten your feet back on the ground so to speak, you should certainly pick up your discussions regarding the current value and marketability of the firm.  The buyers and the banks are waiting – it is certainly not too late to pursue a transaction and meet your goals.