Pool of Potential Small Business Buyers is Changing Says Market Pulse Quarterly Report
LOS ANGELES–(BUSINESS WIRE)–Compared to a year ago (Q2 2015), business sales in the second quarter of 2016 were comprised of more small companies, says the quarterly Market Pulse Report published by the International Business Brokers Association (IBBA), M&A Source, and the Pepperdine Private Capital Market Project.
When compared to data from the Q2 2015 Market Pulse Report, Q2 2016 data reflect an increase in smaller deal sizes. More than half (57%) of the deals that closed in Q2 2016 were valued under $499,999, whereas 50% of deals were valued under $499,999 in Q2 2015. Similarly, respondents report that 23% of deals in Q2 2016 were valued between $5 million and $50 million versus 34% in Q2 2015.
The quarterly report found increased interest from first-time buyers who were foreigners, former corporate executives, or women, compared to Q1 2016 as well as previous years. A third of respondents said more foreigners (35.5%) and former corporate executives (29.5%) inquired about buying a business in 2016 than earlier in the year and 12 percent said that more women were in the market to buy a business.
“When the economic climate in Europe is unsteady we tend to see an increase in investors who want to put their capital into American investments,” said Craig Everett, PhD, assistant professor of finance and director of the Pepperdine Private Capital Markets Project. “The increase in women and former corporate executives who are interested in buying a business speaks to the notion that when someone is not ready to retire, but can’t find the right job sometimes the best approach is to simply buy a business and create your own perfect job.”
Retirement continues to top the list of reasons that sellers go to market, but other factors such as looking for new opportunities, family issues, and health also motivate business owners to sell. This is a shift from a year ago (Q2 2015) when 39% of respondents (compared to 27% in Q2 2016) cited retirement as the main reason for selling their business.
According to the report, year after year, advisor confidence in a seller’s market has remained steady or increased across all market sectors. Businesses in the smallest market sector (deals valued under $499,999) are positioned in a buyer’s market. Advantage shifts, however, as deals exceed $1 million in value. In the lower middle market (deals valued above $2 million), seller advantage sentiment is strong yet remains three to eight percentage points below peak since the Market Pulse Report began in 2012.
“Seller market sentiment peaked in early- to mid-2015. And while many advisors still see a seller advantage, most assume that conditions aren’t going to get better before they get worse,” said Scott Bushkie, Certified Business Intermediary, President of Cornerstone Business Services, Inc., and IBBA Chair. “We’re in the second longest bull run, only behind the bull run of the 1990s leading up to the dot.com crash. We have to assume market conditions will shift, but whether that takes place six months or three years from now is anyone’s guess.
“Several years ago, most transactions took 60 days to close, and now those same kind of deals are taking double the amount of time,” continued Bushkie. “That makes it even more critical for sellers to do their due diligence, have accurate accounting records, and price their businesses realistically. Because buyers are paying a premium, they want to know exactly what they are getting.”
The Market Pulse Report compares conditions for businesses being sold on Main Street (values $0-$2 million) to those being sold in the Lower Middle Market (values $2 million-$50 million). The Q2 2016 Market Pulse Survey was completed from July 1-15, 2016 by 378 business brokers and M&A advisors representing 38 states.
About International Business Brokers Association (IBBA) and the M&A Source
Founded in 1983, IBBA is the largest non-profit association specifically formed to meet the needs of people and firms engaged in various aspects of business brokerage and mergers and acquisitions. The IBBA is a trade association of business brokers providing education, conferences, professional designations, and networking opportunities. For more information about IBBA, visit the website at www.ibba.org or follow the IBBA on Facebook, Twitter, and LinkedIn.
Founded in 1991, The M&A Source promotes professional development of merger and acquisition professionals so that they may better serve their clients’ needs, and maximize public awareness of professional intermediary services available for middle market merger and acquisition transactions. For more information about the M&A Source visit www.masource.org, or follow The M&A Source on Facebook, LinkedIn, or Twitter.
About the Pepperdine Graziadio School of Business and Management
A leader in cultivating entrepreneurialism and digital innovation, the Pepperdine Graziadio School of Business and Management focuses on the real-world application of MBA-level business concepts. The Graziadio School provides student-focused, globally oriented education through part-time, full-time, and executive MBA programs at our five Southern California locations and at our Silicon Valley, and Santa Barbara as well as through online and hybrid formats. In addition, the Graziadio School offers a variety of master of science programs, a bachelor of science in management degree-completion program, and the Presidents and Key Executives MBA as well as executive education certificate programs. Follow the Graziadio School on Facebook, Twitter at @GraziadioSchool, and LinkedIn.