Selling a telecom or technology company for a premium price requires a buyer with plenty of money. Right now, despite the recent downturn, there is currently more money sitting on the sidelines than ever before in the history of American business. The financial community has at its disposal more than $1.15 trillion in pooled capital. Good news for the buyer but even better news for the seller – especially if you are a forward-thinking telecom company owner who is ready to monetize your life’s work. Here’s why.
Financial and strategic buyers alike are looking for desirable middle market companies in the U.S. In addition, foreign buyers still view the U.S. as the best and safest place to invest. But there just aren’t enough good companies coming up for sale. The large number of acquirers and the extremely limited supply of sellers have created an unprecedented seller’s market. Pricing multiples have shot up. Keeping an eye on private equity, Pitchbook reports that for the first 6 months of 2014, the average multiple of Enterprise Value to EBITDA multiple was 11.5 times. Multiples like this haven’t been seen since 2006. With so much capital sitting idle – specifically there are 67 non-financial, publicly listed companies that are sitting on $2.4 trillion – they are under intense pressure to either return this money to investors or find strategic growth through M&A. For the telecom and IT industries, investors are on the lookout for businesses that have been managed well, are profitable and have vision. Key attributes to attributes that investors analyze to determine the attractiveness of a company include: a strong customer & supplier base, capacity utilization and adaptability, quality control, historical and forecasted financial performance and a strong management team to stay in place or help with a transition.
While the acquirer will have their own automated checklist with growth as their sole purpose, the telecom or IT seller of a privately-held and closely-held company will carry a different set of feelings and goals. Every founder, owner or devoted CEO needs to be prepared for the flow of emotions that will accompany the valuation and sales process. Looking at a company founded and grown on blood, sweat and tears in a dispassionate manner can be a challenge. Putting a value on a business that includes sentiment and pride built over the span of a career can be difficult.
After a telecom or technology company has been sold, a period follows where the existing structures of a company are aligned with the buyer’s business goals and management. While potential buyers will have their own vision for blending the two workforce cultures – the seller needs to be prepared with their own ideas as well as how to deal with job redundancies, retiring workers and even new hires. And, just as important, what are you willing to do to close the deal? In many situations, owners are required to stay on and oversee this transition for a period of one to two years, ensuring that the company’s tribal knowledge is passed to the new management team.
There are currently 75 million baby boomers over the age of 65 and retirement is a significant factor driving the sales of these companies. The mass of pent up capital and a generation of retiring business owners will see an increase of companies offered for sale, leading to a drop in multiples thus company values will evaporate. For telecom and IT companies seeking acquisition, the time is now.