National Survey: Waning Seller’s Market for Sale of Small Businesses Signals a Peak in the Market
Seller’s market sentiment is down in all market segments except for businesses with $5 million to $50 million in enterprise value. Looking back a year, seller’s market sentiment has decreased notably for businesses valued between $1 million – $2 million, dropping six percentage points from Q1 2018 (72%) to Q1 2019 (66%). According to the Q1 2019 Market Pulse Report published by the International Business Brokers Association (IBBA), M&A Source and the Pepperdine Private Capital Market Project seller’s market sentiment increased for businesses valued $5 million to $50 million rising from 77% in Q1 2018 to 81% in Q1 2019.
This is the first time in years that we’ve seen four out of five sectors report a dip in seller market sentiment. This is a sign the market may have peaked and more people are expecting a correction in the year or two ahead. Sellers should consider selling now or waiting another few years before the market will cycle back up to current conditions. To be clear, this doesn’t mean you won’t be able to sell your business over the next few years, but you probably won’t get the multiples you can get today. Any market pessimism or uncertainty will drive down value across the board.
The final sale price of businesses varied depending on its valuation according to the Q1 2019 Market Pulse Report. Lower middle market companies in the $5 million to $50 million range had the highest the final sale price at 101% of the benchmark. On the other hand, small businesses valued under $500,000 had the biggest drop from their asking price with final sale prices going from 91% of the pre-set asking price in Q1 2017 to 85% in Q1 2019.
“Businesses with an enterprise value of $5 million or more are most in demand right now. The market is not cooling at all for those sellers,” said Scott Bushkie, IBBA Marketing Chair and Principal of Cornerstone Business Services Inc. “That’s reflected in supply-demand sentiment and multiples.”
The report also found that the majority of small business owners fail to plan for the sale of their business. Advisors indicated that 90% of business owners with an enterprise value of less than $500,000 conducted no formal planning prior to engagement. Lower middle-market business owners were more proactive, although roughly 48% also failed to make advance plans to sell. Advance planning can help sellers receive the highest market value and decrease the amount of time it takes to sell their business.
About the Market Pulse Report
The Market Pulse Report compares conditions for businesses being sold on Main Street (values of $0 to $2 million) to those being sold in the Lower Middle Market (values of $2 million to $50 million). The Q1 2019 survey was conducted April 11-15, 2019 and was completed by 292 business brokers and M&A advisors. This is the 28th edition of this quarterly report.
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 the 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 Pepperdine University Graziadio Business School
For the last 50 years, the Pepperdine Graziadio Business School has challenged individuals to think boldly and drive meaningful change within their industries and communities. Dedicated to developing Best for the World Leaders, the Graziadio School offers a comprehensive range of MBA, MS, executive, and doctoral degree programs grounded in integrity, innovation, and entrepreneurship. The Graziadio School advances experiential learning through small classes with distinguished faculty that stimulate critical thinking and meaningful connection, inspiring students and working professionals to realize their greatest potential as values-centered leaders. Follow Pepperdine Graziadio on Facebook, Twitter, Instagram, and LinkedIn.