Waiting in Vain? How Long Does it Take to Sell a Company?

We know that Bob Marley didn't want to wait in vain (in fact he said so repeatedly in the song) - and neither does the business owner who wants to sell his business. In this context, it's always nice to get confirmation to support some of the principles we apply in business valuation practice with some hard data. So I reacted with some glee when I saw the results of a study carried out by Vianello Forensic Consulting. The study reviewed the Pratt's Stats database that aggregates 20 years' worth of data on transactions involving private companies and showed that the average time needed to market and sell businesses was 211 days (up from 200 days shown in a previous version of the study).

 

Why do we care? Well this factoid provides strong support for the discount for lack of marketability that we often apply in the valuation of an interest in a privately held company. The 211 days represents the average sales period - many transactions closed within 390 days of the start of the process - well over a year!

 

The implications to the owner of a company are twofold. First, is the fact that the seller has to wait to get their money - and I would rather have a dollar today than a dollar in 211 days time. Secondly, and perhaps more importantly, there is uncertainty as to the events that could transpire between the day I start to market my company and the day I close the deal, all of which could adversely affect the value of my company.

 

The data supports a discount for lack of marketability relating to a whole company. Sales of minority interests, being less attractive will take even longer to sell - and therefore attract even larger discounts.