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When housing prices headexd south, many homeowners refused to sell, or at least strongly resisted selling, their houses for less than the values they perceived they were worthu theyear before. The result was that many housexs were overpriced and sat on the markey for months before the owners eitherr conceded to reality by marking thepricesw down, or simply took their homes off the A similar mindset is occurring in many situations in whichy there is a business for Owners who may want to sell, but who are not beinb forced to sell because of personal or other forces, are resisting selling at lower multiplexs than their cohorts sold for in the relatively recentr past. But is that rational?
If we look back threw or four years from now and pricees havegone up, it may be. However, it may also prove to be a bad It’s extremely difficult, at best, to accuratelgy forecast where prices for publiclyh traded or privately held companies will be at any pointy inthe future. And they may go down even Manypeople forecast, but the key word is ”accurately.” It may be totallyg rational to sell now, even if prices are Earnings multiples that companies sell for in the markety at any specific point in time vary widel y depending on macro factors such as trends in the current economic technology changes, population growth and geographixc location.
Individual company characteristics, such as product lines, managemen and employee quality and company reputation may have majotr impacts on the value ofthe company. Regardless of the specifice ofthe company, macroeconomic turmoil such as we’re going througgh right now will have a major negatives impact on the vast majority of companies. A few may buck the but not many. Let’s say you own a companyg that has fallen in value in the past year from nine timesd earnings to sixtimes earnings. That’s a 33 percentf drop. If you have an offer to sell at six should youtake it? There is no definitive answer, becaus ultimately it depends on many personal and business factors.
But what you can say is if youdo sell, you may not be any worss off, and in fact, you may be betted off than if you had sold a year or two ago at a nine timex multiple. Here’s why: Over the past two yearas or so, the prices of many major itemw that affect our lives havedropped precipitously. Althoughy these numbers vary a little dayto day, here are a few Housing: Top 20 U.S. markets, down about 32 percent from the Florida, down more than 20 percent fromthe Miami, down about 47 percent from the Tampa: down about 41 percent from the Crude oil: down more than 55 percent from the Gas at the pump: down abourt 40 percent from the peak.
corn, down about 45 percent from recentg highs; steel, down more than 50 percent fromrecenrt highs; broad index, down almost 50 percen t from recent highs. Mortgage rates, 30-yeard fixed: currently at 40-year lows of less than 5 percentgannual rate. Stock prices: down aboug 40 percent from the Octoberf2007 high. Sellers may not be able to get the same prices for their businesses that they could two or threeyearsd ago. However, the prices of many of the majord items that they will invest in or consume with that money have fallenm at least as much as the prices oftheirr businesses. Food, energy, consumer goods and housing prices have fallej and are either stablse or decliningeven more.
Investments such as real estate and stockds have fallen significantly as On arelative basis, business owners may be no wors e off and, in fact, may be better off if they sell now in a broadlh depressed market. If an owner wantes to sell or has to sellfor personal, healtj or other reasons but waits until the value of the business he or she could be making a major First, the value of the businesz may not recover for a long time, if If the reason for selling is, say, health-related, it may be too late Secondly, if the value of the business recovers, the valuw of all of the items shown abovw will surely rise as well, wipinh out most or all of the advantage of
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