Mountains of unspent cash good news for business owners considering a sale
As we have mentioned previously, a lack of spending within the Private Equity industry is creating significant pressure to invest. This is good news for business owners looking to exit their company as the huge sums of money available means that Private Equity firms chasing well performing businesses.
Lets take a look at the reasons behind the pressure to invest. Private Equity firms charge investors management fees to provide their clients with a healthy return on their investment. It is unlikely that this fee will be returned so should the firm return to the client without an increase on the funds, its reputation could be pretty significantly damaged.
It is estimated that in the US alone, almost $150 billion needs to be deployed before the end of 2013, meaning that owners of profitable, well managed companies considering a sale could benefit.
With heightened interest coming from the Private Equity industry, coupled with increasing demand from corporate acquirers armed with increased access to capital due to record low rates of interest, deal values and multiples being paid have been increasing significantly throughout 2012 and 2013.
One problem sellers could potentially face over the coming years however, despite the increasing demand, is the impeding mass retirements of baby boomer business owners which will cause excess supply and reduced deal values. In the US, from 2011 onwards, approximately 10,000 people a day will turn 65 for the next 19 years. The trend is also evident in the UK as 0.7m UK residents will reach retirement age each year until 2018.
If you are a business owner considering an exit in the next 5 years it would be wise to start considering and planning your exit as soon as possible acting quickly will allow you to capitalize on the current pressures being faced by Private Equity firms in addition to avoiding the potential future problems relating to the baby boomer mass retirement.