Favourable conditions tempt private business sell-off

It is the most attractive time to sell a private business for ten years, as many are being sold for multiples of 15 times earnings, according to UHY Hacker Young.

The gap between the 14.8 times private company post-tax profits and the 15.8 times at which the stock market currently values companies, is at an historically low level, according to Chris Lowry, corporate finance partner at the firm.

“Five years ago, companies listed on the stock market were being valued at an average 22.4 times their after-tax profits, compared with just 12.2 times for private company sales,” he said. “For owners who are looking to ‘cash out’ and feel that getting a stock market listing is not for them, the alternative of putting their business up for sale is more tempting than ever.”

Lowry points out a number of key issues that need to be considered:
• Groom the company to maximise value, such as improving second-tier management and key staff-retention policies;
• Have a concept of the ideal buyer;
• Create a confidentiality policy and have a plan B ready;
• Price in any scope a buyer may have for improving efficiencies; and
• Consider the tax objectives.