Best time to sell

Everyone wants to sell their business for maximum value, but the timing of a sale will be a trade-off between the owner’s readiness, the business’ readiness and the prime selling time in the market. From the seller’s perspective, there are opportunities to transfer a business in almost every type of economy, but planning for a successful sale is becoming increasingly important. Most small- to medium-sized businesses will begin this process with a five-year lead time.

Ideally, owners timing is based on personal motivations, desired retirement date and wealth and estate plan goals instead of illness or other life-changing events. Similarly, the best time to sell the business is when it has achieved maximum value with room to expand. Smart sellers will be positioned to take advantage of their best exit timing by following the trends in their industry.

Private capital markets trends

Based on current information* collected and reported for the private capital markets (all deals reported, not just for landscaping and green industry companies), the market peaked in terms of valuations and numbers of deals in December of 2021. We now appear to be early in the deal recession (buyer’s market) part of the cycle. In the overall economy, banks and other capital providers have and continue to tighten lending criteria and investment activity. The largest acquirers focus on consolidation and integration of their core businesses and are not as aggressive in their acquisition plans. For acquirers with cash, this is a buyer’s market (with valuations tending down.)

Trends confirmed by data collected for transactions in the second half of 2022 include:

• The overall number of transactions is down. This is not surprising since 2021 was an extraordinary year in numbers of transactions, so any reduction would be expected.
• Transaction multiples have remained flat but the numbers of companies successfully completing a transaction have been reduced. This is evidence of a movement towards a buyers’ market.
• There is increased focus and competition for top quality companies.
• The data shows that buyers are demanding that sellers share the risk through deferred and contingent consideration structures. Challenges in the exit market such as labor, rising interest rates and supply chain issues are expected to continue through 2023.

Private business transfers in the U.S. tend to run in ten-year cycles. ** While COVID-19 may have impacted the actual calendar years of the cycle, after the peak at the end of 2021, we have been in a period of “almost recession” which would normally followed by a period of “deal recession.” This tends to last for two to three years with the next period of five to six years being (the middle years) of the cycle being the prime time to sell a business. After those eight years or so, economic uncertainty begins to occur, deals are harder to initiate and close and waiting to get deals done is risky.

Assess and plan to maximize value

Though no one knows what the market will be in terms of timing, owners benefit by being prepared and flexible to take advantage of opportunities. Using a buyer’s lens to view the company will focus strategic planning and annual business plans. We’ve identified the characteristics buyers seek. Smart landscape business owners are planning their personal and business exit strategies now to build their company’s transferable value. They are also keeping in touch with how the market is faring.

*Based on information provided by both ACG about private equity transactions as well as survey data provided by DealWare/AM&AA M&A Market Update

**Robert T. Slee, Private Capital Markets, Second Edition.