BiggsKofford had the privilege of sponsoring a presentation by private capital market prophet Rob Slee on June 23 at the Cheyenne Mountain Resort in Colorado Springs. Among other topics, Slee presented his U.S. Ten Year Transfer Cycle concept and extended it to predict the next ten years. Let’s take a look.
According to Slee’s research, the United States economy experiences a recession (or other economic downturn) during the first three or so years of every decade. The capital supply to the private markets becomes restricted, primarily because lending is restricted, which reduces the leverage a buyer can achieve and lowers valuations as well as limiting access to working and investment capital.
This begins to transition around the fourth year as companies improve profitability which leads into a period of free-flowing capital into the private market. Humans are creatures of habit, so we quickly forget the recession we recently survived and continue to spend and invest until we are over leveraged and over invested. At this point, parts of the economy begin to feel the strain and the economy as a whole is affected by the end of the ten year period.
Why will such a cycle be expected to continue? Because the nature of people, namely, the private business owners, bankers, investors, and politicians in America, is to be overly optimistic in the good times and overly pessimistic in the bad times. We also take a predictable amount of time to adjust to changing conditions and we can be counted on to react in certain ways.
Today, the catalyst for our recession was sub-prime mortgages followed by complete financial system meltdown, bankruptcies, and major fiscal policy changes. Impending commercial mortgage uncertainty will help us to remain in a deal recession for the next several years. Business values will remain flat or fall further as we struggle to adjust. But adjust we will (or go bankrupt) and the survivors will profit again.
In my last post on business value, I mentioned that you can expect to achieve the highest return when selling your business at the right market timing. If the transfer cycle holds, the best time to buy a business will be any time from now through 2013 or so. The best time to sell a business will be toward the end of the prime selling time, or roughly 2016 – 2018. Obviously, businesses will continue to be bought and sold every day, but a savvy business owner will look to exploit this cycle to his or her advantage.
