Timing Right for Business Owners Looking to Sell

By CAROL HAZARD Richmond Times-Dispatch

Business owners thinking about selling their companies might want to take the plunge.

Business valuations are high — “frothy,” some industry experts say — for quality businesses, as private equity groups and strategic buyers scout the market for profitable buys.

In the broad market, “valuations are very full,” said William L. Tyson, senior managing director at BB&T Capital Markets in Richmond. “Valuations are at the high end of what I have seen in my 25-year career.”

Then again, interest rates have never stayed this low, this long. Buyers are able to pay more for companies when interest rates are at or near 0 percent.

How long this business cycle will last is anyone’s guess, although the Federal Reserve has flirted with raising interest rates and could by year’s end.

“We don’t see anything that gives us grave concern as of today,” said Tyson, adding that the economy is doing well and the labor markets have improved.

“When there is certainty, people are more apt to pay a full and fair price for a business,” Tyson said. “Uncertainty equals discounts in private markets.”

That uncertainty was reflected in lower business valuations from 2009 through 2011, as the country came out of the recession. “As businesses got more confident … the merger-and-acquisition market picked up steam,” Tyson said.

In many cases, business owners would like their managers to buy their companies, but management teams often cannot compete with private equity firms, said Carroll D. Hurst, a partner at Keiter, an accounting firm in Henrico County.

John Cox, who sold Cox Transportation Co. in Hanover County to a long-term employee who helped grow the company, is the exception rather than the norm, Hurst said.

Sometimes, owners will provide financing for a management team to buy the company, since it can be difficult for salaried employees to come up with millions of dollars, said Thomas H. Tullidge Jr., co-founder of Cary Street Partners, a Richmond-based wealth management and investment banking firm.

“There is a lot of demand right now for quality companies,” he said. “I don’t know how long that will last.”

Corporate America is likely to continue looking for acquisitions, said Tullidge, adding that he does not see demand for strategic buys waning anytime soon. A strategic investor looks for another business to buy to complement an existing business.

A deal can go bad, causing creditors to tighten up. Geopolitical issues can rattle the merger and acquisition markets.

Barring an unforeseen issue, “I don’t see any immediate surprises on the horizon,” Tullidge said. “It’s a good market for transactions to occur. If a business owner is thinking about selling, now is a good time to do that.”

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