Recently we were approached by an entrepreneur who asked if the timing for selling his business was right, or if we believed he should wait a little longer. Timing is everything is a nice English proverb for the answer this entrepreneur was looking for. But when do you sell a business?
The answer to that question depends on several factors. Are you ready as an entrepreneur? How much do you enjoy your work and entrepreneurship? If you enjoy going to work every day and it doesn't feel like a burden, why would you look for a new owner for your business?
Whether your business is ready is a good next question. Just as you prepare a house for sale, you should do the same with your business. After all, you want to present your business in the best possible way. In practice, this means getting the business in order (if it isn't already). You're going to address overdue maintenance and make sure you come out on top in every aspect of a future book examination.
Market ready for it?
Another important question is whether the market is ready. Since we have a focus on the TMT sector (technology, media and telecom), we will try to answer the question for that industry.
The TMT sector had a record year. According to data from Mergermarket, a total of 6,834 acquisitions were made in the TMT sector in 2021 with a record value of $1.8 trillion. Nearly 18% of that volume was made in Europe. Looking at the investment landscape, we see similar trends. CB Insights, a well-known collector of venture capital data, reported that venture investments reached $621 billion dollars in 2021 and this was 111% more than the 2020 level.
Analysts at Mergermarket saw continued and even Covid-19 accelerated digitization as a key factor for this record. The acquisition rate was high and the question, of course, is whether this will continue. An interesting gauge in the United States is the Nasdaq. This stock market index stood at 15,644.97 at the end of 2021. Are these the first signs of a turnaround as the index fell to 14,506.90 on January 18, 2022, a drop of over 7%?
Multiple
While we don't have a crystal ball to answer the question of whether there is a turnaround, we see no indication at this time that the pace of acquisitions in the TMT sector will slow down. Capital is still cheap and the digitization trend continues unabated. We also see more interest from foreign parties in the Dutch TMT sector.
In our opinion, this will drive up prices and valuations - which have been rising for some time - will go up even further. Brookz twice-yearly Takeover Barometer examines how the valuation of businesses in a given sector is evolving and in the first half of 2019 came to an average valuation of 6.25 times ebitda. This multiple rose to 6.55 in the first half of 2021, and we expect another increase to be on the horizon for the second half of 2021 as well.
Can it go even higher? We think the rise in valuation for TMT businesses will continue until a structural disruption occurs. The pandemic was a driving force for the TMT sector, but global tensions culminating in conflict could lead to a disruption. A possible tightening of the money market and, as a result, an accelerated rise in acquisition financing rates could also lead to disruption of the upward trend.
Seller's Market
Going back to the question of whether timing is right for selling a TMT business, we would venture the proposition that timing is excellent, provided the entrepreneur and the business are ready. The market is currently characterized by a "seller's market. Buyers are lining up for good TMT propositions and in that sense the timing is good, but don't wait too long because the tide can turn very quickly.
