Here are some interesting and disquieting facts:
Conclusion: most businesses whose owners don’t want to simply liquidate their companies and go home will have to be sold to outside buyers.
- Research tells us that 80% of the privately owned companies in the U.S. are owned by baby boomers who will be exiting those companies, or wanting to, in the next 5-10 years.
- Two thirds of those privately owned companies have employees on payroll, removing the single shingle folks who operate out of their garage or spare bedroom, according to the U.S. Census Bureau.
- Of that remaining majority, one in four expects to pass their business to the next generation – a gross overestimate, in our experience. Our estimate is more like one in ten. And of those, the majority will either fail within 2 generations or decline into mediocrity because the spirit of the founder is gone.
Statistically speaking, very few owners of those remaining businesses have any plan in place to exit their companies profitably, despite the proven fact that the successful sale of a business requires several years of preparation. One advisor says: “it often takes a catalyst like an illness, divorce or other catastrophic event before the owner will begin working with my firm on a sale process.”
Given the number of businesses that will be disposed of by their owners in the next decade, fundamental supply and demand logic tells us that most will be sold for a fraction of their actual value to buyers who will have their pick of investment opportunities
. The larger the supply, the lower the price to be paid. For many sellers that is likely to be fire sale prices. In our recent experience we’ve helped businesses complete transactions for up to 9X EBITDA; yet we’ve heard of companies being sold for half that multiple, or even less, because they weren’t perceived as being worth more and had not done enough to demonstrate a more positive view.
We offer a powerful alternative to that scenario – a way to develop and execute an exit strategy that will
- identify the value drivers in a client’s business,
- make improvements that will enhance those drivers with the objective of increasing the enterprise value of the business, and finally,
- guiding them in building a team to complete a successful and profitable exit.