- February 20, 2019
- Market Pulse
February 19, 2019 – LOS ANGELES – Business advisors say that the intense pace of mergers and acquisitions that occurred in 2018 is likely to continue into 2019, but not for much longer. According to the Q4 2018 Market Pulse Report published by the International Business Brokers Association (IBBA), M&A Source and the Pepperdine Private Capital Market Project 83 percent of business advisors say the strong M&A market won’t last more than two years and nearly a third (32 percent) predict the current seller’s market will be over within the year.
Advisors are pessimistic that general business conditions will decline and margin pressure on businesses will get worse. While they expect more deal volume in 2019, they anticipate that the overall time to close will take longer. The current average time to close is 9.3 months, which is trending slower than normal.
“Increased deal activity is being driven by in part by the low unemployment rate which makes it hard for businesses to grow organically,” said Craig Everett, PhD, Assistant Professor of Finance and Director of the Pepperdine Private Capital Markets Project at the Pepperdine Graziadio Business School. “There is an increasing trend of companies buying other companies in order to acquire their skilled labor force. This high demand for labor coupled with strong balance sheets, a positive lending environment, and historically low interest rates are all driving
up deal flow and valuations. However, advisors aren’t optimistic that the current climate will last through 2020. Considering that it’s taking about a year to sell a business valued between $2 million – $50 million sellers should consider going to market before the market flips.”
Seller-market sentiment is on the rise in most market sectors, with more advisors describing Q4 2018 as a “seller’s market” than a year ago, in all but the $500,000 to $1 million sector. Of note, 2018 marks the first full year in which four of the five market segments have been described as a seller’s market.
Multiples continue to remain strong in all categories, at or near market peak in some sectors. Year-over-year, multiples were generally stable or increasing in most market sectors. Advisors do not predict additional multiple growth in 2019.
“Business owners are thinking about getting out before the next recession,” said Laura Ward, Managing Partner of Kingsbridge Capital Partners. “Those who made it through the last financial crisis haven’t forgotten the pain and stress. They’re looking ahead and telling us they don’t have the stamina to work through another one.”
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 Q4 2018 survey was completed by 319 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.
Pepperdine Graziadio School of Business and Management
Director, Marketing and Communications
Scott M. Bushkie, Marketing Chair
Principal, Cornerstone Business Services, Inc.