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Private Company Valuations Are Heading Higher

By Robert Bruml and Andrew Gelfand

Private company owners frequently question, “When is the right time to sell a business?”  Today’s low interest rates and ample liquidity have generally increased the value of private companies and this environment presents attractive sale opportunities for company owners.  With the supply of capital flowing into the coffers of private equity firms and other financing sources exceeding the availability of opportunities, the supply/demand imbalance favors the business owner.

Moreover, private equity has flowed well beyond the core industries in Northeast Ohio to include almost all areas of the economy including health care, business services, media and technology.  If you think your company is too small, it may complement an existing platform company owned by a private equity firm.  If you are reluctant to sell the entire business, you may consider a “minority recapitalization” with private equity or an alternative lender that can provide liquidity without a change of control.  Strategic buyers also have aggressively reentered the acquisition market to complement organic growth.

Today’s economic environment is conducive to meeting your financial goals.  With low interest rates and robust financing markets in place, company owners should examine strategies to enhance the value of their companies.  Some of the value drivers and strategies to consider for both a sale or recapitalization include:

• Present financial results which are “restated” but supportable

• Undertake a “quality of earnings” analysis

• Emphasize new product or service offerings

• Build brand recognition and market reputation

• Build depth in the management team

• Complete key agreements with customers and suppliers

• Create a defensible market position with diversification

• Invest in proprietary technology or patent portfolio

• Make the case for market, product or financial synergies

• Develop financial projections that are credible

Eventually interest rates will rise and there will be a pullback.  The present timing, however, offers a unique opportunity for private owners to achieve liquidity at favorable values.  Having a proactive and experienced M&A advisory firm should be part of your “value added” planning if you are considering a sale or financing.