During the first half of 2022 – spurred by the conditions of 2020 and 2021 – valuations were at an all-time high, with plenty of cash-chasing buyers driving a significant competitive environment. For Osage clients and business owners who sold their companies back in 2021, this was great timing.

As we approach the end of the year, the climate has leveled off – but there is still money out there, and deals are successfully closing. Here are some of the trends to keep an eye on in as we look toward 2023.

Setting Structure

Strategic buyers are looking for synergistic add-ons and companies that can create new market opportunities as well as expand their existing product lines. Osage is seeing companies add structure into deals to secure the right business. Rather than offering an all-cash transaction at closing, for instance, a buyer might structure a deal so that your business will get allocated portions of money if you can prove to the buyer that you deserve the earn out. This is a trend that we may not have seen prior to the pandemic. Yet amid a more uncertain future, putting additional structure unique to both parties in a deal will allow for both companies to win.

The Supply Chain

Distributors are holding onto elevated levels of inventory right now in order to meet customer demands, and this inventory should be worth something. Many of these distributors want credit for this extra inventory, but buyers may wonder instead if the distributor is unable to produce the product needed to boost sales in EBIT. In order to find a happy medium you need to negotiate the working capital component of the transaction. This involves having a conversation with the buyer or seller, running capital numbers and getting your CFO and internal team controller involved so you can justify your position about why you deserve credit for this inventory at the end of closing. It will not be an easy conversation, but it will give you cash in your pocket.

More Financial Buyers

There is a notion today that strategic buyers will always pay more than financial buyers. Osage does not think that’s the case anymore. In fact, we’ve been seeing a significant number of financial buyers chasing deals coming out of the pandemic, often in search of long-term deals and a boost in revenue. Strategic buyers are still out there, though. To get an idea of who you should be selling to, it is important to talk to multiple parties at the same time in order to gain a sense of which direction makes the most sense, allowing you to make the best choices for yourself and your business. Competition is still extremely prevalent, the buyer community is a highly active. When talking to financial or strategic buyers, come to the table prepared to answer every question about your company a buyer would want to know.

Overall, there is still money in the market and strategic and financial buyers are aggressively out there looking for deals. Regardless of where the world is due to inflation, high interest rates, the supply change and more, right now is a great time to get in the market and test it. Drive the process in a way that will allow you to meet your goals for you, your family, and your business.

To learn more you can visit our website, watch us on YouTube or listen to our podcast, The Ins and Outs of Selling a Business.