Market Pulse Survey Report Finds Companies Overtake Individuals and Private Equity Firms in Buying Private Businesses; Sales of Manufacturing Companies Increase Significantly From Last Year
By a 3 to 1 ratio, advisors agree that this is the best time for sellers to maximize the value of their business since the market peak in 2007
September 18, 2013
(Philadelphia, PA) – Existing companies dominated acquisitions this quarter, showing up as the number one buyer type in every category except the smallest Main Street businesses, according to the Q2 2013 Market Pulse Quarterly Survey Report. Compared to Q2 2012, existing companies appear to be edging out private equity firms for deals valued between $5 million and $50 million. In the $2 million to $5 million segments, individual buyers (including past business owners) lost half their market share. They accounted for 50 percent of the deals in that section in Q2 2012, but only 26 percent in Q2 2013.
The Q2 Market Pulse Quarterly Survey Report, released today by the International Business Brokers Association (IBBA) and M&A Source in partnership with the Pepperdine Private Capital Markets Project at Pepperdine University’s Graziadio School of Business and Management, evaluates market conditions for businesses being sold in Main Street (values up to $2 million) and lower middle market (values $2 million to $50 million). This quarter marks the first full year of the project.
Buyers continue to find stiff competition for quality businesses, says Tom Kerchner, Principal at BMI Mergers & Acquistions. Strategic buyers(i.e. existing companies) and individuals are competing for the smaller businesses while strategic buyers are competing with financial buyers such as private equity groups and family offices. As a result it continues to be a sellers market for quality businesses ahead of the expected influx of baby boomer businesses. This latest survey shows that existing companies are outbidding other buyers as they have the advantage of synergies and they see acquisitions as the fastest way to grow their business.
Sixty-one percent of the respondents said that baby boomers are beginning to exit their businesses in larger numbers than in the previous five years. Retirement was the number one reason driving business sales across almost every sector except for the smallest businesses. Advisors predict deal volume will grow, versus stay the same, by a nearly 2 to 1 margin.
As 10,000 baby boomers turn 65 every day, it comes down to a simple numbers game,” says Dr. Craig Everett, director of the Pepperdine Private Capital Markets Project. “The boomer exits are finally letting this demand be satisfied, which could boost deal flow dramatically.
The report also found that for businesses valued at $500,000 or less, burnout was the primary reason for sale, followed closely by retirement. “Prolonged stress and uncertainty in the economy has resulted in an increased number of Main Street business owners selling their company,” says Dora Lanza, principal of Plethora Businesses.
In the lower middle market, for businesses valued between $2 million and $5 million, manufacturing led at 27 percent of completed deals over the last three months, followed by consumer goods/retail and wholesale/distribution, both at 13 percent. Manufacturing also led the $5 million to $50 million sectors at 38 percent, followed by healthcare at 15 percent. This is a significant increase in manufacturing activity versus the same time period last year when it accounted for seven percent and 23 percent of activity by sector, respectively.
Companies Overtake Individuals and Private Equity Firms in Buying Private Businesses
Other key findings:
- Advisors agree, by a 3 to 1 ratio, that this is the best time for sellers to maximize the value of their business since the market peak in 2007-2008. In the lower middle market, less than two percent of respondents anticipate that values will decrease in the next quarter. Most respondents (75% or more) predict multiples will stay the same, with another 10 percent to 24 percent predicting increases.
- For deals valued at less than $500,000, 68 percent of respondents said supply is in the buyer’s favor. Advisors characterize the market as neutral for deals valued at $500,000 to $5 million and 68 percent of respondents say it’s a seller’s market for businesses in the $5 million to $50 million segment.
- The Q2 2013 study continues to confirm earlier findings that larger businesses take longer to close. In the smallest Main Street sectors (businesses valued at $1 million or less), the majority of companies (54% or better) sold in six months. For businesses in the lower middle market, the majority (54%-56%) closed between six months and a year.
The second quarter 2013 Market Pulse Quarterly Survey Report is available here:
About the Market Pulse Quarterly Survey Report
The International Business Brokers Association (IBBA) and M&A Source present the Market Pulse Quarterly Survey Report with the support of the Pepperdine Private Capital Markets Project and the Graziadio School of Business and Management at Pepperdine University. The quarterly IBBA and M&A Source Market Pulse survey seeks to provide an accurate understanding of the market conditions for businesses being sold in the Main Street market (values up to $2 million) and lower middle market (values $2 million to $50 million). The Market Pulse Quarterly Report helps business owners and their advisors make well-informed decisions regarding selling their business and gives business brokers and intermediaries timely and accurate data to help them build and maintain a successful and sustainable business. For more information, visit http://bschool.pepperdine.edu/privatecapital.
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 the website at www.masource.org.
About Pepperdine University Graziadio School of Business and Management
Founded on the core values of integrity, stewardship, courage, and compassion, Pepperdine University’s Graziadio School of Business and Management has been developing values-centered leaders who advance responsible business practice since 1969. Student-focused, experience-driven and globally oriented, the Graziadio School offers fully accredited MBA, Masters of Science, bachelor’s completion, and non-degree executive business programs for business professionals, entrepreneurs, managers, and senior executives at all stages of their professional and personal development. More information: https://bschool.pepperdine.edu/newsroom