According to the IBBA Q2 Market Pulse, the M&A market is “too hot to touch” with roughly 21% of advisors saying 2018 is the best year they’ve ever seen for business owners to sell their business. Consistent with general market optimism, advisors believe seller advantage is growing consistently as the market stays red hot. Multiples remain high in most categories and in addition to strong valuations, sellers are getting more cash at close this quarter, matched with slight declines in seller financing.
Scott Bushkie, president of Cornerstone Business Services, goes as far as to say, “if you’re thinking of selling in the next three to five years, now is probably the time that you’ll obtain the most value.”
Organic growth remains a challenge as businesses of every size are struggling to find qualified talent. This has led some to pursue inorganic growth as a means to acquire resources and grow their business.
Service Businesses are well-sought after in the under <$500K range as they are generally asset-light, making them affordable and risk tolerant as well as less capital intensive. Restaurants, franchises and consumer goods come in a close second.
Who’s buying these businesses? First time buyers constitute roughly half (49%) of the buyers in this sector along with serial entrepreneurs with a third (32%) and existing companies (17%). 50% of buyers are motivated to buy a job, meanwhile 16% are motivated to gain a horizontal add-on. Incredibly, over 85% of buyers in this sector are located within 50 miles of the seller’s location.
As markets peak however, average time to close is up to 9.2 months an increase from Q2 last year. This likely results from buyers digging deeper and performing more due diligence to make sure they’re getting what they pay for.
The majority of business owners fail to plan for the sale of their business. Advisors indicate that 89% of <$500K sector conducted no formal planning prior to engagement. The percentages don’t get much better as in the lower middle market roughly 43% failed to make advanced plans to sell. Even among business owners that do plan, only a few are working with any kind of professional advisor to discuss exit strategies a year or more in advance.
Whether you are looking to sell your company soon or begin planning your transition, the Small Business Deal Advisors is here to help.
Read the full IBBA Q2 Market Pulse Report here: