Strategies for Successfully Selling Your Company amidst Slowing Private Equity Growth
In the face of macroeconomic challenges, the M&A market remains active, with private equity firms continuing to seek out strongly performing companies. Despite a slowdown in the number of private-equity-backed exits, the number of acquisitions remains steady.
The current market uncertainty has not deterred private equity from buying businesses. Deals are still being made, with a focus on high-quality assets. A manufacturer with an EBITDA of $5 million to $10 million+ could be considered a "platform" purchase, while a smaller business with an EBITDA of $2 million to $3 million might be an "add-on".
Private equity firms are sitting on a substantial amount of unsold assets, estimated at a trillion dollars, indicating a continued appetite for acquisitions. However, the industry itself is facing its own liquidity crisis, which could impact the pace of deals.
The U.S. is witnessing a "Silver Tsunami" of retiring Baby Boomers and older Gen Xers who own over half of America's private businesses. This mass exit could lead to a surge in potential sales, either as strategic acquisitions or to private equity.
The construction and manufacturing sectors, in particular, face huge generational gaps, with fewer younger talents ready to take over. This could make these businesses more attractive to private equity firms, which have had significant success in acquiring mid-sized manufacturing companies in recent years, including firms like KKR, Carlyle Group, and Bain Capital.
For business owners, understanding market dynamics, comparative scale, size, and industry is essential to a strong data narrative. A data narrative is crucial to prove a company's books are clean, costs are measured, and profit margins and operations are in order. Having a strong narrative is critical to ensure a buyer doesn't make erroneous assumptions about a business.
The extension of capital gains and estate tax rates under the One Big Beautiful Bill (OBBB) could impact the value of a sale. Owners should ensure their company exists outside their expertise to boost its valuation. Understanding how a company will be valued in a portfolio matters to some owners, especially owner-founders.
Despite the challenges, taking a proactive approach to a sale opens the door for business owners, improving the odds of a successful exit, even during uncertain times. Many business owners are questioning the worth of private equity buyouts for retirement and business succession plans. However, private equity acquisitions offer potential for full value extraction, whether or not the company is sold to private equity.
In conclusion, while the M&A market faces headwinds, private equity remains active, offering opportunities for businesses looking to navigate the uncertain landscape. A strong data narrative, understanding of market dynamics, and a proactive approach can help business owners maximise the value of their exit.
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