With an influx of businesses for sale by retiring Baby Boomers, it could result in an oversupply of M&A targets which may in turn lead to a deterioration in business values.

Every business owner knows the importance of timing in selling a business. External factors like changes in the economy, availability of funding, fluctuations in interest and tax rates can all have a profound effect on the value and salability of a business. There is another external economic factor getting ready to impact the M&A marketplace – The Baby Boomer Effect.

Baby Boomers were born between 1946 and 1964. This group of 77 million Americans accounts for 28% of the population. With the aging business owner population, approximately 40% of family-owned businesses in the U.S. are expected to experience a leadership change in the next five years. A large majority of those businesses will be sold, so the owner(s) can fully fund their retirement and enjoy the fruits of their labor. With an influx of businesses for sale by retiring Baby Boomers, it could result in an oversupply of M&A targets which may in turn lead to a deterioration in business values. Despite promises of continued buyer demand with over 2,200 private equity groups actively pursuing acquisitions in 2008, average multiples always decrease as the number of acquisition targets available increases.

With retirement resources often riding on a business sale, Baby Boomer business owners need to consider all factors that influence when it’s the best time to sell their company. Amongst all small business owners, 65% do not know what their company is worth and 85% have no exit strategy. S&P Capital assists business owners in developing an exit strategy with a no cost, no obligation market analysis of their company. All factors are considered in the valuation, including tax liabilities and the Baby Boomer Effect.

The typical business owner sells one business in his or her lifetime. On the contrary, corporate strategic buyers often acquire multiple businesses each year, and financial buyers can be even more active. Inexperienced sellers can make mistakes that buyers will capitalize on. You can read another article on our website that speaks to these mistakes specifically. By consulting and partnering with our team at S&P Capital, we will help you avoid these mistakes and maximize the value of your business upon an eventual liquidity event.