Second Quarter Market Pulse Survey Valuable for Sellers
The Second Quarter Market Pulse Survey Report by the International Business Brokers Association (IBBA), M&A Source, and Pepperdine University’s Graziadio School of Business and Management found some valuable information for those business owners who are trying to sell their companies.
The survey for the first time asked business advisors about how they market their listings. Most of the survey’s respondents (74%) said that they list available businesses on their own company website like that of Sacramento business consultant Andrew Rogerson. About half (46%) use third-party websites. Referrals, internal buyer lists, and direct mail are all services and tools that are implemented utilized consistently to market listings.
Research shows that listing on a third-party site is two times as effective as any other marketing tool, aside from referrals.
Buyer Selection with Multiple Offers
The Q2 Survey found that 72% of the participants received at least two letters of interests or offers on their most recent closing for their clients. When there were multiple offers, sellers could address clients’ terms and conditions that were important to the business owners.
The Second Quarter Market Pulse Survey Report found that in instances where more than one offer was received, other than cash at closing, the main reasons that the seller selected the buyer were the overall terms (42%), the culture fit for employees (17%), the fact that the owner wanted to leave the business (13%), a short timeframe to close (11%), a beneficial tax treatment (2%), and the fact that the owner wanted to remain with the business (1%). Thirteen percent listed another reason or rationale for their decision.
Interestingly, despite receiving multiple letters of interest, business advisors were less likely to report that it was a “seller’s market” than they were one year ago. This bore out when examining year-over-year results, as final sale prices have fallen a bit in several sectors, when evaluated against the pre-set asking price or internal benchmarks.
When compared against the findings from last year, the time to close has remained consistent, although business advisors saw faster progress in the lower middle market than they did in the first quarter of 2017.
The Second Quarter Market Pulse Survey Report saw what can be termed as “a return to normalcy” as far as the pace at which deals were getting done. The first quarter of 2017 was
impacted by the 2016 election season, and buyers arguably were waiting for the results to sign letters of intent.
Owners received 71% or more cash at close in Q2. Most of the rest were from seller financing, along with some earn outs.
Reasons to Sell
The Second Quarter Survey Report found that retirement continues to be the top reason to sell across all sectors, followed by burnout, and new opportunities. Respondents to the survey said that retirement and burnout were equal motivators in the $1MM to $2MM sector—a rare occasion when retirement wasn’t the absolute top factor. However, one consistent finding is that proactive exit strategies yields higher business values than exiting in burnout mode.
Lou Vescio, CBI, M&AMI, Principal, Coastal Business Intermediaries, Inc., and the IBBA Chair noted:
“Unfortunately, most buyers only really care about the last year or so of business performance, not what you did when you were full of energy and going strong. Waiting until you’re burned out is a common mistake, and business owners can lose anywhere from 20 to 50 percent of value by waiting too long.”
Sellers lose value, he said. And Vescio also remarked that “it’s a much more emotional, gut wrenching process to leave your business in a reactive, ‘not fun anymore, just get rid of it frame of mind…It’s always better to plan ahead and go out on a high note.”
About the Survey
The quarterly IBBA and M&A Source Market Pulse Survey was created to gain an accurate understanding of the market conditions for businesses being sold in Main Street (values $0-$2MM) and the lower middle market (values $2MM -$50MM).
The national survey was conducted with the intent of providing a valuable resource to business owners and their advisors. The Q2 2017 survey was completed by 293 business brokers and M&A advisors in 38 states. Just over half of the respondents (51%) had at least 10 years of experience.
These respondents completed 266 transactions in the second quarter of 2017.
If selling your business is an option you are considering, click here to receive a simple summary of the steps. If you’d like more information this link will allow you to buy and download a copy of Andrew’s book Successfully Sell Your Business.