“Water, water everywhere, but not a drop to drink.” As an advisor who helps business owners prepare to sell their companies, a situation in the world of Private Equity reminds me of this line from Rime of the Ancient Mariner a poem by Samuel Taylor. This oft quoted line refers to drifting on a becalmed sea, surrounded by salt water, but having no fresh water to drink. It reminds me of business owners looking at massive amounts of money available for buying companies, but they are left high and dry because they and their company are not ready.
In September 2017, Bloomberg published an article reporting that private equity groups (PEGs) are struggling to invest about $1 trillion in “dry powder” (funds not yet invested). Sadly, the problem is not new. In June 2014, the Wall Street Journal reported that Private Equity had more than it could spend, mentioning $1.073 trillion of dry powder.
Part of the problem is undoubtedly the volume of money pouring into private equity funds in search of high returns. However, the Journal article cited a survey of in which “39% of private-equity executives responded that their most significant challenge was [unrealistic] pricing.” Additionally, 34% of respondents, up from 28% in a previous survey, cited “identification of quality targets.” These are familiar problems to those working with small and midsize companies. In the opening chapter of Walking to Destiny: 11 Actions an Owner MUST Take to Rapidly Grow Value & Unlock Wealth (2016), Christopher Snider, CEO of the Exit Planning Institute (EPI), reports that “only two out of 10 businesses that go on the market will actually sell.” Many owners anticipate unrealistically high valuations for their companies. They either stick to their guns and don’t sell or they settle for a lower price and are disappointed. Besides owner expectations, most companies are not market ready – not ready to withstand due diligence. Learn how to get yourself and your company ready.
The problem is about to get worse. According to EPI’s State of Owner Readiness Survey (2013), 76% of owners of privately-held businesses planned to transition in the next 10 years. 48% reported they would like to transition in the next five years. Applying these percentages to the 6 million lower middle market companies in the United States, it is easy to see that the sell-side advantage of yesterday is gone with the scale dipping more in favor of buyers.
As a business owner, you have two choices. You can accept this dire situation as fate, or you can do everything in your power to ensure that your company is one of the most attractive and ready businesses. If you want to start taking those actions that will double or even triple the value of your business, enable it to approach best-in-class, and help you unlock wealth contact Go Beyond LLC today: email [email protected] or call (703) 300-4901.