So you asked a couple of questions there. First, I do think that understanding the broad market and selling into a positive market is just as important as optimizing the operations of a business before selling. As an example: say a business owner is selling into a positive market and can get two additional turns on EBITDA now. There is the question, should I wait to fix the business and then take two additional turns when the business is ready to sell? But what if you can’t get those two additional turns because the broad market pulls back? So you’re in the same place later versus where you are today.
It’s kind of like the adage, "you want to raise money when you can, not necessarily when you need it." So selling a business is a similar dynamic, whereas you should sell when you can sell versus when you are fully ready. It’s the difference between an internal view and an external view. The external view may be that it’s as good a time to sell because the dynamics are right within the market or the industry versus waiting to optimize to get everything perfect. I think that you have to be cognizant of both.
Regarding the second question: do entrepreneurs take enough time to really understand market dynamics when selling a business? The short answer is "No," because I don’t think they are contemplating the total life cycle of their company. The business owner's knowledge of this subject has increased though due to the level of media attention on M&A in the recent year.
I think that you see two groups of owners today that are probably more in-tune with market dynamics. The first group is comprised of the business owners that think about retiring or baby boomers. With the amount of outreach that we’ve seen from private equity firms' outbound marketing in the past five years, business owners in the later stages have been forced or at least prodded to think about when is the right time to sell. I don’t think it’s something that they are doing proactively though
The second group is comprised of the younger entrepreneurs that go into business with the intention of going from point A to point B and then sell. They understand now that there is a process and a business cycle. So those folks are really in tune with market dynamics.