Business sales in Q4 2018 still strong
On a quarterly basis, the International Business Brokers Association (IBBA) and M&A Source in partnership with the Pepperdine Private Capital Market Project, collect and publish a report and evaluation of the market for businesses being sold in Main Street markets (values under $2 million) and lower middle markets (values $2 million to $50 million).
This is the only report for the sale of these types of businesses.
The survey for Q4 2018 received 319 completed responses compared to 264 completed responses in Q4 2017.
Market Pulse report highlights for Q4 2018 Versus Q4 2017
Some of the highlights of the Market Pulse report for Q4 2018 Versus Q4 2017 include:
- The sale of businesses continues to strengthen across all market sectors in the fourth quarter of 2018 compared to the fourth quarter of 2017. In brief, 44% of respondents closed the sale of more businesses in 2018 compared to 38% that closed the sale of businesses in 2017.
- Getting third party finance by a buyer to close the purchase of a business varies according to the size of the transaction. The good news is that more buyers were able to obtain finance in Q4 2018 but the ability to get finance varied according to the transaction size. That is, if the deal size was $500,000 or less then finance was difficult. For transactions between $1 million and $10 million it was easier.
- The ratio of businesses sold when compared to the number of businesses on the market increased by 13%.
- The number of businesses for sale increased by 19%.
- The amount of time to sell a business increased by 18%.
- The view of general business conditions was that its better in Q4 2018 compared to Q4 2017 by 28%.
- The median EBITDA multiple paid by was generally the same in Q4 2018 versus Q4 2017.
Market Pulse report highlights for Q4 2018
Some of the highlights of the Market Pulse report for Q4 2018 include:
- The difference between the Asking Price and the Sold Price varied according to the size of the business.
- If the business sold for less than $500,000 the difference between the Ask Price and the Sold Price was 14%,
- If the business sold price was between $500,000 and $1 million was only 5%.
- If the business sold price was between $1 million and $2 million the difference was 10%.
- If the business sold price was between $2 million and $5 million the difference was 0%, that is, the business sold for the Asking Price.
- If the business sold price was between $5 million and $50 million the difference was also 0% or sold for the Asking Price.
- The type of buyer that bought a business was as follows. 48% of buyers were first time buyers, 33% were individuals that already owned a business, 18% were a strategic buyer, 0% were Private Equity Groups and 1% were other types of buyer.
- The reasons a business owner is selling their business is 31% due to retirement, 20% so they can go and do something else or a new opportunity, 19% due to burn out, 12% due to family issues, 5% due to health issues, 5% due to relocating and 8% due to other reasons.
- Where is the buyer located that buys the business? 69% of buyers are within 20 miles of the business, 15% within 50 miles, 3% within 100 miles and 14% more than 100 miles.
- What is the reason the buyer is buying the business? For 52% of buyers its to buy themselves a job, for 12% its to get a better Return On Investment, for 10% it’s a synergistic buy, for 20% its an add-on to complement their existing business and for 6% its another reason.
Market Pulse report expectations for the 1st quarter of 2019
What are the expectations for the first quarter of 2019?
- The expectation of approximately 88% of the respondents is that the number of businesses coming onto the market will either stay the same or increase. This would be my opinion but that’s not good news if you are thinking of selling your business as more inventory of businesses means buyers have more choices plus the economy is expecting to slow with interest rates rising. Another factor is low unemployment rates making it harder for businesses to grow organically. The best solution is therefore to buy a competitor including their skilled employees.
- Another expectation is that approximately 80% of respondents thought the valuation multiples of a business would stay the same.
Market Pulse is a national report
The Market Pulse is a national report and doesn’t look at what is happening in each individual state of the USA. The report also doesn’t take into account the Federal government was shutdown from about December 22, 2018 for the rest of the year and so buyers of a business were unable to get an SBA loan approved to close the sale of a business they were trying to buy.
If you have an interest, compare what was happening in Q3 2018.
Are you thinking about selling your business and move to your next challenge? Would you like to know the value of your business? If you would like more information please visit my website Business valuation.
