Small business owners, wary of economic uncertainty, more realistic about their sales valuations
LOS ANGELES, August 22, 2017 – Continuing a four-year trend, manufacturing companies are the most sought-after business acquisitions valued in the $1MM – $5MM range, according to the Q2 2017 Market Pulse Report published by the International Business Brokers Association (IBBA), M&A Source, and the Pepperdine Private Capital Market Project.
The new quarterly survey shows high interest in the U.S. manufacturing sector among buyers of businesses in the lower middle market, despite national headlines about outsourcing of jobs and companies moving overseas.
“For years, people have talked about manufacturing being dead and jobs going overseas, but there is a resurgence in the U.S.,” said Craig Everett, PhD, director of the Pepperdine Private Capital Markets Project. “In the lower middle market, manufacturing is very much a sought-after industry, as it’s been the number one or two market leader for the last several years. We see it every day: manufacturing businesses are busy, profitable, and in-demand.”
Sales of business service companies dominated the $500k to $1MM segment, while among “Main Street” businesses (under $500k), restaurants and personal services businesses were the companies most commonly purchased.
The Market Pulse Report also found that although seventy-two percent of the participants received multiple interests/offers on their most recent closing for their clients, the business marketplace is becoming more of a buyers’ market, most notably for businesses valued under $2MM, compared to the same quarter last year. This means that buyers have an advantage in price negotiation and sellers are realizing they have to be more realistic with their financial expectations.
“Political and economic uncertainty is causing the shift to a buyers’ market,” said John Howe, M&AMI, Director, Business Transition Strategies, M&A Source Chair. “Sellers are becoming anxious about closing their deals and as a result, they are becoming more lenient about the sale price and the terms and conditions.”
Retirement still the top reason for selling
A desire for retirement continues to be the top reason for selling a business. In the $1MM to $2MM sector, advisors reported retirement and burnout were equal motivators to sell, marking this as the rare quarter in which retirement wasn’t the absolute leading factor across every sector.
“We know from experience that a proactive exit strategy yields much higher business values than exiting in burnout mode,” said Lou Vescio, CBI, M&AMI, principal, Coastal Business Intermediaries, Inc., IBBA chair. “Unfortunately, most buyers only really care about the last year or so of business performance, not what you did when you were full of energy and going strong. Waiting until you’re burned out is a common mistake, and business owners can lose anywhere from 20 to 50 percent of value by waiting too long.”
“Corporate exodus” behind many small business purchases
The survey found buyers in the Main Street market are most often motivated by a desire to leave corporate America and become active full-time in a business. Sixty percent of those purchasing businesses at <$500K and 52 percent of buyers of $500K-$1MM reported that they were “buying a job.” Conversely, buyers in the lower middle market are more often interested in expanding an existing business through a horizontal or vertical add-on.
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 $2 -$50MM). The Q2 2017 survey was completed by 293 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, 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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