LOS ANGELES, November 14, 2016 – For the first time in nearly three years, recapitalization has replaced burnout as one of the top reasons that businesses valued at $5-50MM go to market, according to the quarterly Market Pulse Report Q3 2016 published by the International Business Brokers Association (IBBA), M&A Source, and the Pepperdine Private Capital Market Project.
Recapitalization is when a business owner sells a minority (e.g., 10-20%) or a majority (e.g., 70-80%) of his or her company to a private equity firm, but not 100%. The business owner can thenpartner with the private equity firm to continue to grow the business with reduced risk, nothaving all of his or her ‘eggs in one basket.’ The report found a substantial increase in privateequity activity in the $5 million to $50 million category in Q3 2016 (50 percent of buyers)compared to Q2 2016 (39 percent of buyers).
“The uptick in recapitalization activity could be an indicator that Lower Middle Market businessowners are becoming savvier about their exit planning options and planning more in advance,”said Scott Bushkie, Certified Business Intermediary, President of Cornerstone BusinessServices, Inc., and IBBA Chair. “Business owners are increasingly exploring partnerships thatenable them to exit out of their businesses in stages and take a second bite out of the applewhen they sell their remaining shares a few years down the road.”
“More business owners are finding that recapitalization minimizes the risks and stresses ofoperating a business,” said Craig Everett, PhD, assistant professor of finance and director of thePepperdine Private Capital Markets Project. “Sharing financial responsibility with a privateequity firm is a smart move for business owners who need strategic support or a cash infusion.When owners become ready to sell and retire, recapitalization can make their companies moreattractive to buyers.”
The quarterly report also found that businesses in the smallest market sector (values of $0-$2MM) are positioned in a buyer’s market, although seller leverage is improving. As deals begin toexceed $1 million in value and enter the Lower Middle Market (values of $2-$50MM), theadvantage shifts to sellers.
The Market Pulse Report compares conditions for businesses being sold on Main Street (valuesof $0-$2MM) to those being sold in the Lower Middle Market (values of $2 -$50MM). The Q32016 survey was completed between October 3 and October 18 by 278 business brokers andM&A advisors from 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 theneeds of people and firms engaged in various aspects of business brokerage and mergers andacquisitions. The IBBA is a trade association of business brokers providing education,conferences, professional designations, and networking opportunities. For more informationabout 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 andacquisition professionals so that they may better serve their clients’ needs, and maximize public awareness of professional intermediary services available for middle market merger andacquisition 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, Pepperdine Graziadio School of Business and Management focuses on the real-world application of MBA-level business concepts. The Graziadio School provides a student-focused, globally oriented education through part-time, full-time, and executive MBA programs at five Southern California locations and at Silicon Valley and Santa Barbara 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, and the Presidents and Key Executives MBA, as well as executive education certificate programs. Follow the Graziadio School on Facebook, Twitter at @GraziadioSchool, Instagram, and LinkedIn.
Pepperdine Graziadio School of Business and Management
Director, Marketing and Communications
Scott M. Bushkie, Chair
Principal, Cornerstone Business Services, Inc.
p. (920) 436-9890