Last week, I shared the “perception is reality” theory of business value and worth.
Which empowers “profit challenged” companies to sell for multiples of their revenues – as opposed to more conservative and traditional ones of their cash flow and EBITDA.
There are 3,997 companies this year that have done just this.
So much of why they’ve been able to do this is because of the imbalance of today’s financial markets – where there are so many more qualified and motivated buyers than there are companies for sale.
The “buy side” imbalance is driven by:
- the deep interconnectedness of the world’s financial markets (no matter how much tough trade talk might emanate from Washington);
- the almost unfathomable amounts of capital and liquidity in these markets; and,
- when it comes to investing in private, for profit companies, the strong preference of most global investors is to do so in certain countries, and the USA remains at the top of the list.
The “sell side” imbalance – where there just aren’t that many dynamically run, excitedly branded, and high market potential companies out there for sale – is, among other factors, driven by:
- The economic dominance of a relatively small number of very large businesses (mostly tech and financial services companies);
- Regulatory costs and friction that disproportionately impact and slow smaller firm growth;
- Uneven to non-existent small business executive training and development; and,
- The affluence of modern life – which has to an alarming degree demotivated the kind of bootstrapping, high intensity entrepreneurship and work ethic of perhaps a generation or two ago.
The end result is – to the degree that any business in any industry can position and brand itself as a company that astute observers feel is “going places“, well then…
…the price for that company will be driven up and up.
The obvious but easily overlooked example of companies that have exploited this imbalance is the 3,997 startups that have raised a record $57.5 billion this year.
Based on little more than dynamic leadership, exciting branding, and high market potential.
Now, the critical difference between the capital a startup attracts and the capital a more seasoned and mature business does, is that startup capital does not provide liquidity for shareholders. Rather, it is for the use of the company to incubate and grow the business (as is natural and appropriate).
While powerful, the startup investing model – because of its high failure rate and uncertain timeline to exit – is not an ideal wealth and liquidity building strategy for most seasoned executives and business owners.
No, for them, it is far better to bake that “startup aura” into their existing businesses.
To do so requires both work and faith.
…Work to re-invigorate those aspects of a business that have grown out-of-date, cynical and fatigued.
…And faith that the work will be rewarded.
Who knows what the future holds?
But the present is a time of high valuation opportunity for executives bold enough to take advantage.
Want to Sell Your Business for a Multiple of Revenues?
If you’re interested in selling your company in the next 3-6 months, then complete this short questionnaire as to a few questions regarding your business’ current status, and key goals now.
And we’ll reach out with our thoughts to help you.