I deviate this week from my usual practice of sharing a real conversation with a real business owner. Today, I’d like to share another kind of story that has important implications for any business owner.

I was recently playing golf in a tournament raising money for a worthy local charity. I was delighted to hear the charity raised almost $100,000 in a single day. While on the golf course, I met one of the event sponsors, the principal broker for a local residential real estate firm. Of course, it didn’t take long for our conversation to turn to business, and he told me about the mounting backlog of high-end homes on the market. He handed me a nice brochure with pictures of $2+ million homes currently on the market and said, “This time last year our inventory was only about 33% of what’s on the market today.”

The message was clear and unsettling, it is no longer a seller’s market. We’re seeing a swing back to a normal balance between buyers and sellers. This will surely affect valuations. 

A couple of days later I was reading a report on private equity investor activity. This subscriber-only report keeps me up to date on market valuations, who’s buying what, and how much capital is being deployed. For the first time in several years, the report for Q2 2022 showed a downward trend in valuations, about 30 basis points on the average multiple. Of course, 30 basis points isn’t the difference between a great valuation and a terrible valuation, but down is down. However, what was even more enlightening in this report was the comment that the volume of deal activity had fallen, and this trend was even more pronounced than declines in valuation.

Simply said, less transaction activity for less dollars.

Now, you will never hear me say “you gotta sell now.” I will never try to cajole a client to sell a business because the window to sell is opening or closing. Today I simply offer two disparate pieces of information that you might want to use in your business planning. I’ve heard for years the phrase “there’s money on the sidelines,” and while I know that to be true, that money seems to be more judicious these days.

Now, I begin where I started today’s missive, at the golf tournament. The event was raising money for a charity that supports kids with cancer and other life-threatening conditions. Meeting kids who’ve come through those traumas, and the parents of some kids who didn’t, I came away reminded there’s way more to life than just ROI and the pot of gold that awaits at the end of a business transaction. I trust you can evaluate your business challenges and opportunities within the context of your rich blessings.

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Tennessee Valley Group

Jim is an attorney (non-resident status with the Missouri Bar) and though he no longer practices law, he has read and negotiated enough legal documents to fill a cargo tanker. He has an MBA from Harvard Business School and knows how Wall Street and private equity operates. Jim is a Tennessee Supreme Court Rule 31 listed general civil mediator with tons of experience helping business owners (large and small) work through sensitive problems to achieve winning results. He is the author of "Home Run, A Pro's Guide to Selling Your Business, Seven Principles to Make Your Company Irresistible."

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