In recent days, you’ve likely seen a number of news reports reviewing highlights of the last decade. 2010 seems like yesterday to me, maybe because that was the year I started my business brokerage firm, Tennessee Valley Group. Although it’s a cliché, the past ten years have flown by for me. I’ve made many new friends while shepherding deals with total value of about $250 million.
I’ve completed deals in healthcare, manufacturing, business services, and even an upscale wine shop. My clients have sold their businesses to sophisticated private equity buyers, demanding corporate buyers, and energetic individual buyers. Some of my clients have been past the normal age of retirement and some have been hard-charging 30-somethings ready to move on to the next thing.
Despite the diversity in type and size of each deal, or with the objective of each buyer and seller, I’ve seen four themes emerge which I think have relevance going into 2020 and beyond. First, the seller who doesn’t have to sell will be able to sell for a higher multiple. Suffice it to say, it’s best to sell your business before you have to, assuming you want the best price. Second, if the seller’s business has been a thorn in the side of a publicly traded company and that company is interested in acquisition, the selling price could be twice as high as that offered by a financial buyer. Selling to a “strategic buyer” will always yield a higher multiple. Third, individual buyers, including search funders, will have increasing difficulty finding that “diamond in the rough.” The demand for good deals currently outstrips the supply of good deals. More times than not, individual buyers will find themselves on the outside looking in. Going forward, opportunities for value creation will belong to the individual buyer not afraid of a business with problems or in need of a turnaround. Finally, the best companies I have sold the past decade have some kind of external board of advisors, such as Vistage, The Alternative Board, C12, or Entrepreneurs Organization. A business owner who is open to third-party feedback is usually running a better company, and guess what? Those companies sell for higher multiples.
I am enthusiastic about 2020 and the new decade. If the Lord allows, I will continue to help smart business owners harvest a reward for their years of labor. What I’ve learned and buyers and sellers over the past decade will inform my advice going forward. That’s why I believe business owners who understand these principles will have a better exit, whether it’s the next decade or beyond.
JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. https://www.amazon.com/Home-Pros-Guide-Selling-Business/dp/1599329239 . He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The principles above are true, but the story, names and fact patterns are changed to preserve the parties’ identities.
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