Selling Your Company In a Challenging Economy

In tough times companies find it harder to expand through traditional sales and marketing channels. Many firms seeking growth pursue targeted acquisitions to achieve their growth objectives. If the economy is growing rapidly these firms would have less incentive to make a business purchase. They could more readily expand organically and it would likely be less costly compared to making an acquisition.

Many acquirers are aggressively seeking acquisitions to replace lost business and fill excess capacity. A prime example is the commercial printing industry, where the loss of 10-15% in sales volume can make the difference between profit and loss. The combination of two $5 million printing operations, where both had been marginal or losing money, can result in a very profitable $10 million company that is maximizing its machinery and personnel.

There are record numbers of former corporate executives seeking to purchase privately held companies, as a direct result of corporate downsizing.

A recession may affect some companies more than others. If your Company has experienced a significant earnings decline it is generally not a good time to sell. Given that significant earnings declines will generally have a negative impact on the value of a business, owners should evaluate whether they are in a position to put off a sale until the business performance improves. A decline in sales and profits does not always result in a catastrophic affect. The real question is not "have sales declined" but "how has this business performed in comparison to others". Are sales down by less than the general market? Is the business positioned to grow rapidly when the economy rebounds?

Judging from our many years of experience in representing privately held companies, it is not simply the state of the economy that affects the value and marketability of a business. Many niche companies have been able to buck the general economic trend. These companies can and do receive premium purchase values in times of economic distress. Companies that are doing well, despite difficult economic conditions, remain highly marketable. Acquirers are always concerned about how a company will respond to economic headwinds. By performing well in the face of a recession, it provides acquirers with a comfort level to proceed with an acquisition.