In a perfect world, your preferred handpicked buyer would come knocking exactly when you are ready to transition your business to its next (ideal) owner. And this knocking would occur precisely when you have all of the I’s dotted and T’s crossed – say nothing of having your performance on an upward trajectory and your industry in favor.
But the reality is this rarely happens. Depending on the type and size of the company you operate, you may get inquiries from time to time from competitors, private equity firms and/or search fund investors. With a great deal of capital yet to be deployed, acquirers cast a wide net to canvass the landscape of opportunities, but what should you do when outreach efforts turn into legitimate expressions of interests?
The receipt of an unsolicited offer to purchase your business can be a heady experience – equal parts invigorating and stress-inducing. After all, the opportunity at hand is involving your livelihood, your source of income (both present and future), and in many ways, your legacy. The decision to sell your proverbial “baby” is often multi-faceted, so it pays to approach unanticipated opportunities in a balanced and rationale manner.
To help ensure these situations are handled well and taken in consideration of all important constituents (e.g. partners, other shareholders, key employees, and family members – all told, the stakeholders), we have outlined the following considerations:
Driven by an upsurge in the “Magnificent Seven” tech stocks, the S&P gained 16.9% through Q2 while the rest of the market was essentially flat. Q3 had a promising start in July, only to see equity markets falter in August and September as reflected in Q3 results for the three major U.S. market indexes: the S&P 500 -3.65%, the Dow Jones Industrial Average -2.51% and the NASDAQ composite index -4.1%. We see this as a normal pullback from a significant rally, not signs of a potential crash. What happened?
Inflation persists, prompting the Fed to signal higher rates for longer. This dashed hopes for rate reductions, which fueled the run up, and triggered a sell-off. With fiscal policy driving inflation, and the Fed combating it with record setting (pace and amount) rate hikes apparently to no avail, we have seen a flight to quality—from stocks to treasuries. Yes, inflation is down from 9% to 3.9%, but these are year-over-year growth rates. Prices are compounding at that rate, well above the Fed’s 2% target.
Two key drivers of inflation—energy and wages—are significant headwinds for the Fed’s efforts. Oil prices are up more than 28% to over $90 a barrel due to short supply. This sharp rise reversed the decline in U.S. headline consumer and manufacturing inflation. A 22% increase in third quarter diesel prices will further impact the economy through increased transportation costs.
From the Fed’s perspective, the unemployment rate is stubbornly low. The last report showed that weekly jobless claims fell to the lowest rate since last January. Increased unemployment is a primary indicator to the Fed that its rate hikes are working. The UAW strike offers further perspective on the current labor market. The strike will also negatively impact Q4 GDP growth. Wage pressures are an issue for the Fed, corporate profits, and economic growth generally.
