It’s Money Time in 2020, and the clock is ticking.

What is Money Time in Sports?

The last minutes of a match. The money time period comes down to the decisive moment of a game where time seems to freeze, where superstars have the opportunity to realise their dream and win life-time admiration from their team and fans. It is during Money Time that you end up in the hall of fame. 

Families who own businesses are getting this piece of New Year’s advice:  Sell. It’s Money Time!

All conditions are right, but the clock is ticking. It is a great time to put a private company up for sale while the economy is strong and many deep-pocketed buyers are circling, wealth advisers are also reminding clients of looming political, regulatory and tax uncertainties. Furthermore, black or grey swans can pop up any time as proven very recently (Coronavirus)… and selling a company properly does take about a year’s time or more.

High valuation and multiples

With the stock market setting record highs almost daily, interest rates near historic lows and the broader economy doing well, owners are getting high valuations for their businesses whether they are located in the US, Europe or Belgium.

This extremely low interest rate environment brings massive piles of cheap money available to leverage acquisitions, driving activity in the M&A market and resulting in very attractive multiples. It comes as no surprise (source Vlerick M&A Monitor), that Mid-Market EV/EBITDA’s are high, and the optimal financing mix includes Earn-Outs (close to 30% of deals) and Vendor loans (above 35%) which allow to facilitate higher transactions multiples.

Deep pocketed buyers

There are plenty of potential buyers seeking acquisitions. Private equity firms have an unprecedented amount of cash to deploy. Blackstone, Carlyle, CVC, KKR, H.I.G Capital, L-Catterton, … and many other firms have almost USD 1.5 trillion in unspent capital, an all-time high, according to Preqin data and the World Economic Forum in its latest article “A new Leadership agenda for Private Equity”.

Private equity firms executed about USD 450 Billion of deals last year. 

On the other hand, Industrial buyers and many super-rich families are also in the hunt, adding to the competition. They’re building out family offices and looking for recession-proof businesses that generate solid dividends to include in their portfolios while Industrial buyer’s fight for market dominance and economies of scale. 

Several sectors are seeing significant consolidation from which Automotive, Elderly Care, Healthcare and Biotech, Luxury, Food & Beverages, Technology and Services are some examples. 

Generation shift 

Boomers business owners are getting offers they cannot refuse and there is an acceleration to sell. 

Many Boomers hoped their children would succeed at some point, but they need to assess whether the next generation is gifted enough and has what it takes to run the show. Advisers often need to offer a reality check to owners whose children aren’t stepping up to take over. 

If conditions change, advisers want to make sure they’re not blamed for failing to warn clients to sell in money time. This particularly applies to the Baby Boomer business owners who are now approaching retirement age. 

Older owners have plenty of good reasons to unload their businesses now. Many are already worried about the future of their industries, especially the threat of disruption from new competitors or technology changes, “getting disrupted, or “des-intermediated”. 

Regulatory, Political and tax Uncertainty 

The “Brexit” has now to be eaten by the “menu” with a tight schedule and so many topics to be agreed upon. The EU 27 have to act together to define a new “trade agreement “with the U.K. Belgium (#8) and the Netherlands (#3) are prime UK trading partners and even tighter if measured per capita.

Last night (February 04, 2020) asymmetric speeches of Boris Johnson in Norwich and Michel Barmier in Brussels bear witness to the canyon that separates both view of a future collaboration while many E.U. countries face their own internal turmoil (France with their new Pension Scheme, Italy seeking appropriate leadership, Spain confronted with Catalonia independence, Poland up for presidential election…).

On the other side of the Atlantic, the re-election of Donald Trump on November 3rd could mean a phase II trade negotiation with China and possibly a new trade war front towards Europe.

In Belgium, the uncertainty around the formation of a federal government and the appetite of certain political parties to raise capital gain and wealth taxes puts business continuity at risk. For owners of family businesses, selling by the end of 2020 could result in a much smaller tax bill than striking a deal in 2021 or further under possible new rules. When looking at taxation on capital gains in neighbouring countries this can quickly take a 30% bite out of the (now tax free) apple.

Buckle up

The decision to sell a family business isn’t made easily. The process of taking the decision, pitching your company at its best, finding the appropriate buyer, agreeing on the appropriate price and terms and completing the transaction can take a year or more and is not an easy and soft ride.

Some families also aren’t sure they want to let go of their life’s work. That’s driving investors to make more creative pitches. Families can be reluctant to give up control immediately but may be willing to sell a minority position first, then after getting comfortable, sell a controlling stake over time.

Realizing a partial capital gain while keeping a large minority stake and enable diversification often proves to be an excellent option. Buyers with deep pockets are more likely to have the expertise and resources to keep up or finance future growth.

If you were thinking about selling your business in the next two years, it’s definitely something to think about. If the economic cycle reverts or some grey or black swans pop up, the window could close for a couple of years.

Would you want someone to team up with, a coach, an advisor, a professional in selling businesses, visit our website at www.onetoonecf.com

Daniel Gillet and Jeroen Maudens are Partners at ONEtoONE Corporate Finance. They advise owners and entrepreneurs of Family business and Private Equity firms across Europe. For any queries you can reach out to [email protected] or [email protected].