Survey Finds Trade Wars Do Not Rattle Business Owner Confidence, although Rising Interest Rates Have a Negative Impact on Both Buyers and Sellers
Business brokers continue to be bullish on a strong M&A market for 2018. Optimism persists despite economic and political uncertainty about U.S. tariffs, according to the Q1 2018 Market Pulse Report published by the International Business Brokers Association (IBBA), M&A Source and the Pepperdine Private Capital Market Project. On May 1, 2018 President Trump delayed steel and aluminum tariffs for key allies including the European Union, Canada and Mexico. In spite of the uncertainty over a future trade war, the majority of advisors surveyed said that tariffs will not impact the sale of businesses for both buyers (56 percent) and sellers (60 percent). In fact, 86 percent of advisors said business owner confidence is better than a year ago.
According to the report, the industry as a whole is keeping a close eye on the tariff situation, but right now those surveyed do not see the trade wars impacting buyer confidence. Business brokers expect better clarity on how they will impact M&A as buyers and sellers reconcile tariffs with business costs. Many businesses are taking a ‘wait and see’ approach as current economic growth could make an increase in raw material pricing more tolerable.
On the other hand, rising interest rates are viewed as problematic with advisors predicting a negative impact on sellers (43 percent) and buyers (68 percent). Rising interest rates may spur activity in the short term as buyers are motivated to take on debt before financing becomes more expensive. As interest rates move up, purchase prices may be subdued, despite an otherwise strong market.
“With interest rate increases looming, buyers and sellers were motivated to accelerate the deal making process early this year. We may continue to see abbreviated timeframes in order to get ahead of additional increases,” said Craig Everett, PhD, Director of the Pepperdine Private Capital Markets Project. “At the same time, a strong seller’s sentiment in the lower middle market gives business owners and advisors the leverage they need to set timetables and keep the deal process moving forward.”
Consistent with general market optimism, seller market sentiment is at an all-time high in four of five market sectors. Business in the $1 million to $2 million sectors had the biggest jump in confidence, growing 14 percentage points. Despite the seller market advantage, the majority of Main Street business owners fail to plan for the sale of their business. Advisors indicated that half of businesses that went to market in the last quarter did not sell and that 88 percent of business owners in the less than $500,000 sector did not have a formal exit strategy.
About the Market Pulse Report
The Market Pulse Report compares conditions for businesses being sold on Main Street (values of $0 – $2 million) to those being sold in the Lower Middle Market (values of $2 million – $50 million). The Q1 2018 survey was completed by 271 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 Pepperdine University Graziadio Business School
Anchored in the core values of integrity and innovation, the Pepperdine Graziadio Business School 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, Instagram and LinkedIn.