Seller confidence declines for the sale of businesses

For the first time in the last 28 editions of  Pepperdine University’s “Market Pulse”, seller confidence has declined in 4 out of 5 price ranges. That means for business owners who want to sell, there are changing market conditions to consider and deal with.

 Craig Everett, PhD, director of Pepperdine University Private Capital Markets, says “This is a sign the market has peaked, and more people are expecting a correction in the year or two ahead.”

From the Market Pulse Report:

“The final sale price of businesses varied depending on its valuation according to the Q1 2019 Market Pulse Report. Lower middle market companies in the $5 million to $50 million range had the highest the final sale price at 101% of benchmark. On the other hand, small businesses valued under $500,000 had the biggest drop from their asking price with final sale prices going from 91% of the pre-set asking price in Q1 2017 to 85% in Q1 2019.”

Businesses with enterprise value of $5 million or more are most in demand right now. The market is not cooling at all for those sellers,” said Gary Papay, managing partner of IBG Business. “That’s reflected in supply-demand sentiment and multiples.

Read a summary of the report here.

 Sell now or wait?

For those sellers who are having an emotionally hard time letting go and whose business is valued at under $5 million, it is most likely go NOW or wait another five to seven years for the market to cycle back up to current conditions.

Unfortunately, Market Pulse goes on to report that for the lower quartile of the market, drivers (or lack there of) remain the same. 

Business Owners, by-in-large are still cursed with:

  • Unrealistic expectation of values

  • Declining sales trends (especially in bricks & mortar)

  • Dated business practices (technology)

  • Over reliance on the owners themselves

  • Significant customer concentration

 

At Strategic Succession, we’ve been addressing this for years. with business owners.  We see that many financial planning and  business advisors are not helping Business Owners adequately plan for the disposition of their largest asset.

About the Market Pulse Report

Market Pulse Report is published quarterly by the International Business Brokers Association (IBBA) and M&A Source with Pepperdine University Business School.  It compares conditions for businesses being sold on Main Street (values of $0-$2MM) to those being sold in the Lower Middle Market (values of $2MM-$50MM). The Q1 2019 survey was conducted April 11-15, 2019 and was completed by 292 business brokers and M&A advisors. This is the 28th edition of this quarterly report.

Want thoughts on your situation? Let’s talk.

John

John Robinson

Read more here: HEADWINDS BUSINESS OWNERS WILL FACE AS IT COMES TIME TO SELL

 

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