Selling a business now may make economic sense - St. Louis Business Journal:

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When housing prices headed south, many homeownerw refused to sell, or at leasgt strongly resisted selling, their houses for less than the values they perceive they were worth the year The result was that many houses were overprices and sat on the market for monthd before the owners either concede d to reality by marking thepricee down, or simply took their homes off the A similar mindset is occurring in many situations in which there is a busineszs for sale. Owners who may want to sell, but who are not beintg forced to sell becauseof health, personal or othedr forces, are resisting selling at lower multiplez than their cohorts sold for in the relatively recent But is that rational?
If we look back three or four yearas from now and prices have gone up, it may be. it may also prove to be a bad It’s extremely difficult, at best, to accurately forecast where pricez for publicly traded or privately held companiews will be at any point in the And they may go down even Manypeople forecast, but the key word is It may be totall rational to sell now, even if pricese are down. Earnings multiples that companiez sell for in the marke t at any specific point in time vary widely dependinv on macro factors such as trends in the currenteconomic environment, technology changes, populatiob growth and geographic location.
Individual company characteristics, such as product lines, management and employe quality and company reputation may have major impacts on the valu e ofthe company. Regardless of the specifics of the macroeconomic turmoil suchas we’re going throughb right now will have a majodr negative impact on the vast majority of A few may buck the but not many. Let’s say you own a companyg that has fallen in value in the past year from nine timesw earnings to sixtimes earnings. That’z a 33 percent drop. If you have an offer to sell at six should youtake it? There is no definitivwe answer, because ultimately it dependsd on many personal and businese factors.
But what you can say is if youdo sell, you may not be any worsee off, and in fact, you may be betted off than if you had sold a year or two ago at a nine timezs multiple. Here’s why: Over the past two years or so, the price s of many major items that affect our livew havedropped precipitously. Although these numbers vary a littl e dayto day, here are a few examples: Top 20 U.S. markets, down about 32 percentt from the peak; Florida, down more than 20 percent fromthe Miami, down about 47 percenf from the peak; Tampa: down aboutt 41 percent from the peak. Crude oil: down more than 55 percenr fromthe peak.
Gas at the pump: down abour 40 percent from the Commodities: corn, down about 45 percen t from recent highs; down more than 50 percent fromrecenyt highs; broad index, down almost 50 percenyt from recent highs. Mortgage 30-year fixed: currently at 40-yeaf lows of less than 5 percentrannual rate. Stock prices: down about 40 percen t from the October2007 high. Sellers may not be able to get the same pricezs for their businesses that they could two or threesyears ago. However, the prices of many of the majod items that they will invest in or consumes with that money have fallen at least as much as the pricesd oftheir businesses.
Food, energy, consumer goodsd and housing prices have fallen and are either stablew or decliningeven more. Investments such as real estatw and stocks have fallen significantly as On arelative basis, business owners may be no worsew off and, in fact, may be better off if they sell now in a broadluy depressed market. If an owner wants to sell or has to sell for health or other reasons but waits until the valuw of thebusiness recovers, he or she coulfd be making a major mistake. First, the valuwe of the business may not recover for a long if ever.
If the reason for selling is, say, health-related, it may be too late Secondly, if the value of the businessz recovers, the value of all of the items showmn above will surely rise as wiping out most or all of the advantageof