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IBBA Market Pulse Q3 2015



Market Pulse Quarterly Report Shows Sellers Increasing Hold Advantage in Business Acquisitions

Motivation of buyers changes as size of deal increases; Synergistic buyers look for deals valued over $1MM

LOS ANGELES, November 12, 2015 — While buyers still hold the advantage for transactions valued at $1MM or less, the percentage is shrinking according to a national survey of business brokers and M&A Advisors who assist business owners and buyers in selling and buying businesses. Half of the survey respondents (52%) said that it is a sellers’ market for deals valued between $1MM to $2MM and the percentage of respondents who believe that it is a seller’s market increases as the size of transaction grows. Three-quarters of respondents (75%) said it is a sellers’ market for transactions valued between $2MM and $5MM and 83% believe that it is a sellers’ market for deals valued between $5MM and $50MM.

The study, the Market Pulse Survey published by the International Business Brokers Association (IBBA), M&A Source and the Pepperdine Private Capital Market Project, also shows that the motivation of buyers changes with the size of transaction. Respondents said that the majority of buyers who purchased businesses for under $1MM made the acquisition to ‘buy a job’ whereas 70% of buyers of purchased businesses valued between $5MM to $50MM made the acquisition to grow an existing business.

“Typically, buyers of small businesses are employed, but they have an entrepreneurial spirit,” explains David Ryan, President Upton Financial Group. “These buyers are looking for a compelling reason to leave their job security and run a business of their own. The buyers of larger businesses, on the other hand, are making synergistic purchases to add depth and breadth to their existing business.”

“Corporate buyers tend to seek businesses that have valuable employees and a strong customer base,” says Craig Everett, PhD, Director of the Pepperdine Private Capital Markets Project. “They are often motivated by opportunities to cross sell products and services as well as reduce costs. Manufacturing companies are often synergistic purchases and were the top industry for business sales in the $2MM to $50MM category.”

The survey also found that the recent volatility of the stock market did not prevent buyers from pursuing a business purchase, with 75% of surveyed advisors indicating there was no impact from the instability of the stock market. The findings also indicated that sellers did not feel a sense of urgency to go to market because of the upcoming elections.

“Valuations for business seem to be holding steady however there is a slight decrease in the $1 to $2MM valuation range,” said Scott Bushkie, CBI, M&AMI, President, Cornerstone Business Services. “This tends to be the price range in which individual buyers are priced out and existing businesses owners are inclined to buy, but only when it can add to their current operations.”

The Q3 2015 survey which compares the conditions for businesses being sold in Main Street (values $0-$2MM) and the Lower Middle Market (values $2MM -$50MM) was completed by 192 respondents, representing 20 regional and international business broker and M&A associations.  Half of the respondents (50%) had at least 10 years of experience in the M&A industry and participating advisors reported closing 214 transactions in Q3 2015.

Additional Key Findings:

  • Restaurants, retail and personal service businesses led market activity in Q3 2015 for businesses valued under $500,000.
  • The top three industries for business sold in the $5MM to $50MM range were manufacturing, business service and information technology.
  • Retirement continues to dominate sellers’ motivations for business owners who sold a business.
  • Larger transactions take longer to close and the period of time to close continues to increase as buyers become more sophisticated. Transactions over $1MM in value take an average of 8 months to close which is up from 7 months in Q3 2014.
  • Only businesses valued between $500,000 and $1MM closed faster in Q3 2015 (6 months) compared to Q3 2014 (7 months).

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.

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.

About Pepperdine University Graziadio School of Business and Management

A leader in cultivating entrepreneurship and digital innovation, the Graziadio School of Business and Management at Pepperdine University 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 eight campuses, 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, Presidential and Key Executives MBA and executive education certificate programs. Connect with the Graziadio School by following the links: Facebook, Twitter and LinkedIn.

Contact:

Pepperdine University Graziadio School of Business and Management
Lisa Perry
Director, Marketing and Communications
p. (310) 568-2314
Lisa.Perry@pepperdine.edu

IBBA
Scott M. Bushkie, Marketing Chair
Principal, Cornerstone Business Services, Inc.
p. (920) 436-9890
sbushkie@cornerstone-business.com