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When Is the Right Time to Sell a Company?

Updated: Jan 22, 2021

Regardless of whether a large company wants to sell part of a company or a medium-sized company initiates a mergers and acquisitions process due to a succession plan, in both cases, key points must be discussed. One of these points is when is the right time to sell.

Mergers & acquisitions have a long tradition in the United States. M&A activities were already taking place during the industrial revolution. From a macroeconomic point of view, the US M&A market has been in a periodic up and down since then. This phenomenon is also known under the term “M&A waves” (Merger Waves). These phases have an impact on all global mergers and acquisitions events. As early as the beginning of the 20th century, the first wave of M&A could be observed, which was expressed in horizontal company mergers. This wave was caused by general industrialization. This trend came to a temporary end in the US stock market crash of 1904. In the years 1916 to 1929, a second wave can be noted. This period was mainly characterized by vertical corporate mergers. M&A activities came to a standstill in the massive stock market crash of 1929 (Black Friday), which subsequently led to an unprecedented economic crisis. The third wave of M&A activity emerged from 1965 to 1969. Lateral corporate mergers were the focus of this wave, mainly for the purpose of risk diversification. This wave only subsided after a stock market crash in 1970 and the oil crisis that followed. The fourth merger wave can be dated from 1984 to 1990. The reasons for this can be attributed to impressive deregulations as well as a return of companies to their core competencies. Another wave started in 1993. This wave of transactions was characterized by mega-mergers from the telecommunications, finance, and pharmaceutical sectors. It came to an abrupt end when the Internet / high-tech stock market bubble burst in 2000/2001. The sixth movement on the mergers and acquisitions market began in 2002, favored by a comparatively low level of interest rates, which made it much easier for institutional investors to finance a company acquisition. The M&A transactions again came to a standstill in 2008 due to the global financial crisis. Due to the still relatively low level of interest rates and the ever-advancing internationalization, a new wave of M&A can be observed from 2011, which has so far persisted. Institutional investors are still interested in carrying out international mega deals. The extent to which the current global corona pandemic will affect the international M&A market remains to be seen.

Although the mergers and acquisitions waves described above always have different causes, they can all be associated with external shocks. These shocks put the affected companies under considerable pressure to adapt. The high phases of the M&A market can often be traced back to changes in the company's regulatory environment or to technical innovations. On the other hand, economic crises and recession often lead to a temporary decline in the mergers and acquisitions market. If the M&A market is in a deep phase, however, it does not mean that a company will not find a buyer. With appropriate preparation and professional implementation, an interested party can usually be found even in a low phase who has a rather long-term time horizon.

Regardless of mergers and acquisitions waves, other influencing factors naturally also play an important role. Since medium-sized companies are often family-run, the individual personal situation of the owner is of particular importance, in particular, the age and health situation of the entrepreneur. Many entrepreneurs are of advanced age and have not yet dealt with succession planning. The entrepreneur's future planning often plays an important role. The sale of a company provides financing for old-age provision for many Central Easterners. There are a number of other conceivable factors that can influence the time of sale. In general, it can be said that due to the advancing internationalization and the low-interest rate level, M&A activities will increase for many companies in the future.



All blog articles are to be understood as experience reports and do not claim to be either correct or complete. Nor do they represent legal and tax advice. They replace in no way an individual advice. The author assumes no guarantee or liability. Use at your own risk.

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