The first quarterly report from Pepperdine University's Graziadio School of Business and Management, the International Business Brokers Association (IBBA) and M&A Source finds that 70% of business brokers surveyed identified the Main Street business sector (values under $2 million) as a buyer's market. As business grew in size, brokers identified the market as neutral or favorable to sellers (see also Pepperdine University Graziadio School of Business and Management).
The quarterly Market Pulse Survey Report, produced in cooperation with the Pepperdine Private Capital Markets Project, was created to give business owners and their advisors access to current market conditions and trends for businesses sold in Main Street (values under $2 million) and lower middle market (values above $2 million) sectors. Find the report here: http://bschool.pepperdine.edu/privatecapital.
"Business brokers are at the heart of many transactions between those businesses that seek to transfer ownership and potential buyers. They are the intermediary helping business owners understand the true value of their business, confidentially market the business, handle inquiries, manage negotiations and see through many of the details of the sale," said IBBA's Scott Bushkie, also a principal with Cornerstone Business Services, Inc.
"With 70% of brokers reporting that sales of Main Street businesses favor buyers, it is clear that these small to mid-sized businesses are still struggling to come out of the Great Recession," said Dr. John Paglia, director of the Pepperdine Private Capital Markets Project and associate professor of finance at Pepperdine University's Graziadio School of Business and Management. "Data also show a number of forces are bearing down on Main Street business owners who desire a good deal when they seek to sell."
The second quarter data collected by the Pepperdine Private Capital Markets Project, IBBA and M&A Source also shows that across market sectors the vast majority of those looking to exit their businesses cited: retirement, burn out and to pursue a new opportunity as the top reasons to sell. While not primary drivers of selling, "unsolicited offer" began appearing as a motivator at the $1MM value and above, while concerns over possible tax increases showed up only at $2MM and above.
The data, based on 162 survey responses from Business Brokers around the country, also found that small Main Street businesses were the fastest to close in the second quarter with 77% of deals reportedly closing in less than seven months. As deal size increased, so did the time it took to complete the transaction. In the lower middle market, 84% of deals in the $2MM to $5MM range closed in 11 months. Eight-five percent (85%) of deals more than $5MM closed in six to nine months but 8% reported taking two or more years to close. Manufacturing Businesses are trending upward in the Main Street market The survey found that the hottest selling businesses in the $1mm to $2mm range were manufacturing companies, with 47% of purchases coming in this category. Manufacturing was followed by healthcare and biotech at 18% and construction/engineering at 12%. As business size grew to the lower middle market, the $2MM to $5 MM sector, 29% indicated wholesale distributors and 21% indicated business services as companies that were sold in the second quarter.
"The survey is showing a diverse array of businesses valued at more than $1MM selling," said Dr. Paglia. "With manufacturing leading the upward trend, this may be a significant sign of impending economic growth of the upper segment of the main street business sector."
The Market Pulse Survey Report is available on the Pepperdine Private Capital Markets Project website here: http://bschool.pepperdine.edu/privatecapitaL.
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