Time to Sell? Maybe.

When is the Right Time to Sell a Business?

Starting and managing a business (successful or otherwise) is an incredibly challenging and demanding endeavor. Once established, deciding when and whether to sell a business is a likewise complex and emotionally-taxing decision. While no one can time the market perfectly, there are macro trends that may indicate when the time is right to sell one’s business.  

Currently, there are at least four major trends that may indicate it is time to explore a sale. The following posts will explore these trends.  

Private investments

The public markets have captivated investors for more than a decade. Since 2011, the average annual S&P 500 return (almost 14%) has exceed historic averages, and those returns accelerated during the past few years. In fact, the S&P has virtually doubled during the past five years. 

With such attractive returns, relative safety, liquidity, and a lack of alternative investments, the public markets have benefited from much of the investment available in recent memory. This is evidenced in the number of transactions—whether initial public offerings (IPOs), SPACs or M&A occurring during recent years. In fact, the number of SPACs (a “blank check” method for private companies to access public markets) more than doubled in 2021 to a record 613 transactions. 2021 also saw a record number of mergers and acquisitions—with more than $5 trillion in global volume.  

Moving forward, however, public market returns are predicted to be much more muted. Whispers of a recession fed by the removal of various stimulus efforts are leading to bearish forecasts. In fact, Bank of America predicts negative returns for the S&P during 2022. 

Such relative lackluster returns will have investors seeking greener pastures. They will likely turn to the private markets for better opportunities. Individual and institutional investors will recapitalize smaller and younger companies at earlier stages and prepare for the next deal cycle.  These market conditions may afford an accelerated or more lucrative opportunity for business owners to exit during 2022.