Crystal Balls, Bubbles, Cycles, Roll-ups and Business Values

crystal balls; timing; time; M&A

Recently, I was discussing with a good friend and long-time client the past financial successes of her company. Its continued annual growth in revenues, net income, and earnings before interest taxes depreciation and amortization (EBITDA) was extraordinary. Should she continue with the Company’s compounding growth and ride it to the glass ceiling of mid-size companies or sell?

Determining the right time to sell a Company at its maximum value is not a luxury afforded to many owners; however, it is not entirely out of the question. The inconsistent phenomena of a business positioned in the right place at the right time, a bubble, cycle, or roll-up does occur. Value multiples increase to 7 – 10 times EBITDA versus the historic valuation multiples of 3 – 6 times EBITDA. Value is best determined in the context of the business’ strategic fit, growth strategy, industry specifics or timing.

Owners must seriously consider the opportunity to sell out when premiums in value may be realized.  Investment professionals should be able to provide guidance on identifying the occurrence and duration bubbles, cycles and roll-ups.

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