The Owner's Main Objectives and Motivation
Operating a small company is demanding work, and eventually the primary interests of an owner can start to shift to activities other than operating their company. Owners who are proactive about planning for their futures will generally have more time to enjoy other activities. An owner’s declining interest or ability in operating their companies can quickly lead to erosion of ownership value and a smaller pool of potential buyers. Lastly, the very low rate of successful ownership transfers across generations suggests that many small companies will perform better under new, independent leadership.
Interest Rates and Taxes
Interest rates remain at historically low levels which is supporting the economy. Income tax rates on capital gains also remain at lower levels. Many expect both interest rates and tax rates to increase in the not-too-distant future in order to raise funds for repayment of the significant national debt. Increased taxes can lead to decreased net proceeds from the sale of a company. Likewise, increased interest rates can make acquisitions more costly to buyers which can suppress pricing since “value” and interest rates work inversely to each other - as rates move higher, value moves lower.
Company Performance and Trends
Economic conditions over the past few years have been difficult on many small companies. Those companies that have continued to operate successfully from a strong foundation demonstrate unique value to buyers. Identifying a new owner while a company is performing well can produce better results in terms of net proceeds and buyer quality. Demand for business acquisitions from all sectors—high net worth individuals, corporations, and private equity groups— remains strong. However, as we have seen, the future is uncertain and market conditions can change suddenly and dramatically. Trying to ‘time the market’ is risky when selling a private company just as it is in buying shares of publicly traded stock.
