Our Economy on the Rise (Knock on Wood): Should You Sell Your Home – OR Your Business?

Is it just me, or is everyone you know selling and buying homes right now? Five of my best friends have purchased new houses in the Twin Cities area and concurrently sold their previous dwellings just this spring. Two of them were forced into closings on their new purchases earlier than what they would have preferred, worrying that it might take some time for them to sell the condos they have lived in for the past few years. Both sold their condos in less than a week – for more than the asking price! During the process of viewing new homes with their realtors, all friends also experienced bidding wars and houses sold out from under their noses without getting a chance to bid or counter.

While I admit that my friends and I are in the typical age range for thinking about buying a new home (the “almost-30—but-definitely-not-yet-30” range), this housing market frenzy is not just a product of peer pressure in my close-knit circle of college pals. According to a recent Star Tribune article, real estate sellers are “leaping” back into the market, and this past April new listings in the Twin Cities metro area showed the biggest increase in two years. Real estate purchases also increased by over 5% from the same time last year, and the prices paid were over 12% higher overall. 

Reflecting on this recent trend, I was reminded of another article I read in the Star Tribune just a few months earlier related to the market for selling a business. As anyone in the M&A market (including we business lawyers!) has been made painfully aware over the past couple of years, companies have been reluctant to enter into the transaction conversation. However, according to this article, it is not only a “hot time” to sell your home, but also to think about selling your business. Investment banking firms have apparently been seeing valuations rising to pre-recession levels, with the typical six- or seven-times EBITDA commonly used as a valuation yardstick reportedly reaching closer to ten or even eleven times in certain industries. A representative from one of Minneapolis’s local investment banking firms is definitely not the only person who thinks these levels are “extraordinary.”

Even though I am still in a relatively nascent stage of my transactional legal career, I have also personally seen evidence of this trend. I have experienced an uptick in conversations regarding the buying and selling of our clients, and recently sat in on two different meetings with clients and investment bankers – the first two of my almost two-year-long career. The company my husband works for also just recently sold off one of its affiliates in a successful transaction. 

According to the Star Tribune article, there is an “unprecedented amount of capital that’s looking to be invested in business acquisitions,” including large capital pools of private equity investors. Additionally, the bank/lending markets are slowly becoming more amenable to transactions as well, while interest rates remain low. Ultimately, experts in the industry are advising entrepreneurs and other business owners that it’s a great time to think about going to market. While we M&A lawyers agree that these are “very unusual times” as compared to the past few years, we hope they stick around and provide us with some exciting opportunities to assist our clients with successful exits and/or acquisitions in the coming months and years!

A Post by Karen Wenzel, Guest Blogger

Tips for Navigating the Exit of Long-time Entrepreneurs

In recent months, I have had the pleasure of working with two lifelong entrepreneurs on the sales of their businesses.  Each of the entrepreneurs had decades of deep business experience, but that experience did not include buying or selling other companies.  Counseling them through the sale process, it was evident to me that we, as deal professionals (including attorneys as well as investment bankers, accountants, etc.), sometimes forget that M&A is not something that many business owners experience on a routine basis.  That being the case, I offer these five basic tips for entrepreneurs preparing to start down this path:

1. Get your legal and financial advisors involved in your potential transaction as soon as you either decide you want to sell or receive an offer or inquiry from a party interested in purchasing your business. Many key deal points are raised by buyers early on, and while you may not be technically committing to completing a transaction on those terms, it can be difficult, time-consuming and expensive to try to change those terms later.

2. If you have not bought or sold a business recently, ask your attorneys, accountants, or other advisors for a roadmap of the process. It will help you feel more comfortable if you have a better idea of what issues and questions to anticipate from the buyer and have realistic expectations regarding timing and transaction costs.

3. You will feel frustrated, angry, impatient, thrilled, and excited at various stages in the process.  Decide whether or not getting your deal done is worth enduring those stages and, if so, know and accept ahead of time that these things are going to happen.  Keep in mind that the deal process is a means to an end that is profitable for you.

4. Share your concerns and questions about the transaction with your attorneys.  Remember that they are on your team and they can only help address issues that they are aware of.  An experienced M&A attorney I know routinely asks sellers before a deal is signed or closed, “Is there anything that keeps you awake at night?”  That is a good way to gauge your comfort level with the transaction and whether or not you have raised every issue you should raise with your advisors.

5. Once you’re in serious discussions with a potential buyer, do not try to hide your business’s weak points.  Buyers understand that every business has “warts” and the earlier in the negotiations that these are discussed and understood by both parties, the smoother the process is likely to go, and the more trust that will develop between buyer and seller.

A Post by Alyssa Hirschfeld, Guest Blogger