The S&P 500 increased over 18% in 2017.  Deregulation and corporate tax reform look to boost public company valuations even higher.  Is 2018 the year for you to exit your business?

Thinking of Going Public?

If you are thinking of taking your company public, 2018 may be the year to do it – before summertime.  Last year turned out to be better for IPOs after a slow 2016.  According to PitchBook’s 2017 US IPO Trends report, 74 PE and venture capital-backed companies completed IPOs in the first 10 months of 2017.  In the aggregate, they have outperformed other equities.

Conditions are right for 2018.  Equity assets are at record highs and market volatility has been very low.  Low market volatility is important to an IPO.  There is an inverse correlation between volatility and IPOs… the higher the volatility, the worse it is for an IPO.  Underwriters want stable markets in which to release new shares.

Some Market Risk Factors to Consider

Things may change around summertime 2018 as market risk may increase.  Some risk factors are:

  1. Electoral uncertainty.  If the Democrats seem poised to capture one or both houses of Congress, expect the markets to react negatively.  Regardless of your own political views, business loves this administration.
  2. The new tax law.  We will have had six months to evaluate the impact of the new tax law.  If promised relief doesn’t materialize, or revenues to the US treasury drop off dramatically, there could be more changes to tax laws.  More change = more uncertainty = more risk
  3. Political scandal.  Expect a market backlash if the Mueller investigation implicates high ranking members of the administration.

Most Companies Exit Through a Sale

Your company is far more likely to be acquired than to go public.  In November 2017 alone there were 943 M&A deals announced, more than an order of magnitude higher than all IPOs through October 2017.  That’s just for larger deals.  According to the internet business for sale marketplace BizBuySell, there were 2,589 small business transactions during 3Q17.

If you are thinking of selling your business, there are a few simple things you can do to get a better deal.

  • Make sure your financials are clean, easy to understand and can survive rigorous due diligence.  Acquirers do lots of deals and the easier you can make it for them the better deal you may get.
  • Review your legal docs and cap table.  Investors don’t like surprises when it comes to understanding who really owns your company
  • Place a value on your business by working with your board, advisors or an independent valuations expert.

Sources:

  1. PitchBook
  2. BizBuySell Insight Reports
  3. US M&A News and Trends, Factset