While valuations for small and medium businesses held strong in 2019, remaining at or above market peaks, advisors expect that businesses will take longer to sell in 2020 and that closing deals will become more difficult. Business brokers representing small businesses valued at less than $500,000 point to financing challenges as an obstacle to getting deals done.
“Small businesses valued at less than $500,000 have become harder to sell in the last few years. Advisors have consistently singled out that sector as a buyer’s market, with more supply than buyer demand. Financing is also an issue as individual buyers struggle to line up the cash and lending support necessary to complete these deals,” said Barry Berkowitz, principal, Berkowitz Acquisitions.
The average time to sell a small business has risen to 8.6 months, a 133% increase from 6.4 months in 2013. Of that, roughly 60 to 120 days are spent in due diligence and execution after there is a signed letter of intent.
“As valuations rise, due diligence increases,” said Craig Everett, PhD, director of the Pepperdine Private Capital Markets Project at the Pepperdine Graziadio Business School. “Buyers are paying a premium for lower middle market deals, so deal teams are spending more time verifying seller data and validating their investment recommendations.”
The Market Pulse report also found that seller-market sentiment dipped slightly in the lower middle market at the end of 2019, but advisors still indicate that sellers have a strong advantage across all but the smallest business sector. Excluding businesses valued at less than $500,000 advisors have not rated any sector as a buyer’s market since Q3 2017.
About the Market Pulse Report
The Market Pulse Report compares conditions for businesses being sold on Main Street (values of $0-$2MM) to those being sold on the Lower Middle Market (values of $2MM-$50MM). The Q4 2019 survey was conducted January 1-15, 2020 and completed by 300 business brokers and M&A advisors. Respondents completed 273 transactions this quarter.
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
For more than 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.
Contact:
Pepperdine Graziadio Business School
Hillary Doran
Associate Director of Marketing
310.568.2339
Hillary.doran@pepperdine.edu
National Report: Business Brokers Predict More M&A Activity, But Longer Time to Sell Businesses in 2020
February 13, 2020 – LOS ANGELES — Business brokers expect a healthy M&A market in 2020 with 55% of advisors predicting the volume of deals (under $50 million) will increase in the next 12 months according to the Q4 2019 Market Pulse Report published by the International Business Brokers Association (IBBA), M&A Source, and the Pepperdine Private Capital Market Project.
While valuations for small and medium businesses held strong in 2019, remaining at or above market peaks, advisors expect that businesses will take longer to sell in 2020 and that closing deals will become more difficult. Business brokers representing small businesses valued at less than $500,000 point to financing challenges as an obstacle to getting deals done.
“Small businesses valued at less than $500,000 have become harder to sell in the last few years. Advisors have consistently singled out that sector as a buyer’s market, with more supply than buyer demand. Financing is also an issue as individual buyers struggle to line up the cash and lending support necessary to complete these deals,” said Barry Berkowitz, principal, Berkowitz Acquisitions.
The average time to sell a small business has risen to 8.6 months, a 133% increase from 6.4 months in 2013. Of that, roughly 60 to 120 days are spent in due diligence and execution after there is a signed letter of intent.
“As valuations rise, due diligence increases,” said Craig Everett, PhD, director of the Pepperdine Private Capital Markets Project at the Pepperdine Graziadio Business School. “Buyers are paying a premium for lower middle market deals, so deal teams are spending more time verifying seller data and validating their investment recommendations.”
The Market Pulse report also found that seller-market sentiment dipped slightly in the lower middle market at the end of 2019, but advisors still indicate that sellers have a strong advantage across all but the smallest business sector. Excluding businesses valued at less than $500,000 advisors have not rated any sector as a buyer’s market since Q3 2017.
About the Market Pulse Report
The Market Pulse Report compares conditions for businesses being sold on Main Street (values of $0-$2MM) to those being sold on the Lower Middle Market (values of $2MM-$50MM). The Q4 2019 survey was conducted January 1-15, 2020 and completed by 300 business brokers and M&A advisors. Respondents completed 273 transactions this quarter.
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
For more than 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.
Contact:
Pepperdine Graziadio Business School
Hillary Doran
Associate Director of Marketing
310.568.2339
Hillary.doran@pepperdine.edu
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