25 Apr Once-in-a-Lifetime Seller’s Market
Amazing but true. Premiums are being paid for companies that are selling today. Companies that would have topped out at five or six times EBITDA three years ago are going for seven, even eight today.
I didn’t see it coming but now that it’s here the logic is simple. An imbalance of supply and demand.
On the supply side there are very few companies in play today. Most businesses have performed poorly during the recession and their owners are not proud of the financial performance. They know the time to sell is when profits are high.
On the demand side, the number of buyers has not declined from where it was three and four years ago. The numbers of individual buyers has held steady, maybe even increased. The number of industry (“corporate”) buyers has declined only slightly. The number of private equity groups has held steady and they’re more aggressive than ever.
The result is a huge imbalance between supply and demand that dramatically favors the sellers. Lots of buyers picking over few quality companies available today. Buyers are paying, and sellers are receiving, premium prices.
It won’t last forever. If you own a company that has performed well during the recession you can actually get a premium today. That is, secure a price that is higher than you could have gotten two, three, four years ago.
We’ll provide more detail on this topic soon, in articles to be posted at www.AcquisitionAdvisors.com