Survey Also Finds Sale of Small Businesses Remains Strong Despite Uncertainty About Tax Reform
December 5, 2017 – LOS ANGELES — More than half (55 percent) of business brokers and advisors surveyed expect the shrinking labor market will cause more business owners to expand through acquisition according to the Q3 2017 Market Pulse Report published by the International Business Brokers Association (IBBA), M&A Source, and the Pepperdine Private Capital Market Project. With a tight labor market and unemployment rates at pre-recession levels, the challenge to find strong talent is good news for the M&A market.
The Q3 2017 Market Pulse Report reveals an uptick in activity by private equity and strategic corporate buyers compared to last quarter indicating a strong demand for add-on acquisitions. According to survey respondents, 90 percent of deals in the $5MM-$50MM range were acquisition or add-on growth opportunities compared to 60 percent in Q2 2017.
“Talent scarcity is driving M&A activity,” said David Ryan, an advisor with Upton Financial Group. “For businesses looking to grow, acquisitions present an efficient way to secure a trained and established labor force. When we talk to corporate M&A teams, we increasingly hear that talent acquisition is a key part of their strategy.”
A tightening labor market could help spur the Federal Reserve to raise interest rates, with another rate increase anticipated this December. Nearly half (49 percent) of the advisors surveyed say the potential for rising interest rates has buyers and sellers pursuing aggressive timelines, hoping to get deals closed more quickly while financing is cheaper.
Meanwhile, most advisors (81 percent) say that uncertainty over President Trump’s tax plan is having little impact on M&A activity in the Main Street and lower middle markets, which represent deals valued under $50MM.
“Tax uncertainty has hit the larger M&A market, as U.S.-targeted deals fell to their lowest rate since 2013,” said Craig Everett, PhD, Director of the Pepperdine Private Capital Markets Project. “Despite this uncertainty, small business sellers are maintaining a ‘business as usual’ approach when it comes to M&A tax issues. So far President Trump’s efforts to reduce regulatory tax burdens have only provided clarity around taxes that support family succession plans. This is important for family-owned businesses and I expect additional tax reform will increase buyer demand and strengthen the M&A market.”
According to the Q3 2017 Market Pulse Report, seller market sentiment is positive, reaching an all-time high in the $1MM-$2MM sector since the survey began in Q2 2012. For sellers, valuations remain a compelling reason to enter the market. Meanwhile, buyers are no longer up against peak market prices, making it easier to justify an acquisition. Year over year, the time to close a deal has shrunk in most sectors with progress accelerating significantly in the $500K-$1MM and the $5MM-$50MM sectors.
About the Market Pulse Report
The Market Pulse Report compares conditions for businesses being sold on Main Street (values of $0-$2MM) to those being sold in the Lower Middle Market (values of $2MM-$50MM). The Q3 2017 survey was completed by 334 business brokers and M&A advisors.
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, and Twitter.
About the Pepperdine Graziadio School of Business and Management
Anchored in the core values of integrity and innovation, the Pepperdine Graziadio School of Business and Management challenges individuals to think boldly and drive meaningful change that positively impacts their organizations and communities. With an entrepreneurial spirit, the Graziadio School advances experiential learning in small classes that deepen connections and stimulate critical thinking. Through our wide continuum of MBA, MS and Executive degree programs offered across six California campuses, Graziadio faculty inspire full time students and working professionals to realize their greatest potential as values-centered, “best for the world” leaders. Follow Pepperdine Graziadio on Facebook, Twitter at @GraziadioSchool, Instagram, and LinkedIn.
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