2015: The Year of the Business Sale

As another year passes into the history books, it’s a Happy New Year ahead indeed. Not since 2008 has a new year looked as promising for business owners and CEOs in the U.S. Why? Because like the planets circling the sun, as trends come and go, rarely do they align. But when they do, it’s time to pay close attention. Despite the many offshore markets and economies still struggling to warm up, the USA, whose GDP is 85% domestic  is likely to get even hotter this next year. Take a look at why the start of 2015 looks so sparkling:

  •  Consumer confidence and spending (up)
  • Business confidence (up)
  • Employment rate (up)
  • GDP growth rate (up 5% Q3 2014)
  • Stock markets: Dow and S&P 500 (all-time highs)
  • Lending rates:  (still historically below avg benchmark treasury rates)
  • Energy costs: (oil and natural gas prices way down – crude oil down 50%)
  • M&A activity: (highest deal value since 2007 before the crash)

Now, could all these promising business and economic indications together be an aligning of the stars, or a mere coincidence? Most were already trending higher, albeit slowly with fits and starts for several years. But it seems the sudden drop in gasoline prices at the pump has awoken a sleeping giant; that is the US Consumer Economy. And this awakening in my view is that which will make 2015 the best year in seven to sell a business.

The catalytic drop in Crude Oil and Natural Gas prices is already driving a profit-boosting ripple effect for nearly all consumers and businesses by dropping the high cost of energy. The result is the multiplier effect, that is to say, the “animal spirits” of nature and markets that will lift demand and profits further. Think about that. Higher profits mean higher business valuations. And given the perpetuating low cost of borrowing, and abundance of idle cash still sitting on Corporate USA balance sheets while it lasts, the planets have aligned, and that means a spectacular new seller’s market will likely soon follow in 2015.

If you following me on LinkedIn you may recall my recent article A Decision Tree Exit about When to sell a Business.  In it I thought to address why, given the many moving parts and considerations that go into a decision to sell or not, most CEOs get paralyzed in the process which grinds their efforts to a halt. So I tried something different to help loosen things up, at least on paper. I used a tool from business school called a Decision Tree to actually quantify the many choices a business owner must make to get from A to Z.

A Decision Tree links several potential outcomes together, and puts a value on each path to find the best route forward. Using this method the model showed that the more I knew for certain about my business and industry trends, the higher value resulted from each decision. For instance, given the strong data points above instead of a 50-50 chance the market would go up in 2015 I changed it to a higher 80-20 chance. The model, in turn, produced a much higher value decision to sell in 2015. Absent that higher chance, the decision to sell in any given year was less compelling [see the model].

So here’s the bottom line.

Can anyone predict the future, even a mere 6 months ahead? No.  But absent any specific knowledge about a downside trend in key market dynamics, or in your business more specifically, 2015 is very likely to see the planets align for business owners. And that could in turn drive up valuations and make exploring the market for a potential sale in the months ahead a stellar move.

—— About the author: Rick Andrade is an investment banker at Janas Associates in Pasadena, Ca and finance writer in Los Angeles helping CEOs buy, sell and finance middle market companies. Rick has earned his BA and MBA from UCLA along with his Series 7, 63 & 79 FINRA securities licenses. He is also a Real Estate Broker, a volunteer SBA/SCORE instructor, and blogs at www.RickAndrade.com on issues important to middle market business owners. He can be reached at RJA@JanasCorp.com. This article is for informational purposes only and should not be considered in any way an offer to buy or sell a security. Securities are offered through JCC Advisors, Member FINRA/SIPC.