How Changing Market Conditions Can Impact Your Business
Recently, the International Business Brokers Association (IBBA) released its Q2 survey report, The IBBA and M&A Source Market Pulse. This survey features feedback from an impressive 301 brokerage professionals across 44 states, with 266 transactions occurring in the quarter. The report had numerous vital findings that interest those looking to buy or sell a business.
The Emergence of Covid-Proof Businesses
The Market Pulse survey concluded that a quarter of all small and medium-sized businesses are either in a position where they are temporarily closed or are operating below capacity. One key fact of interest is that 25% of companies are still operating below capacity due to the pandemic’s enduring impact. On the other side of the equation, the survey noted that 29% of businesses have either emerged as “Covid proof” or have benefited from the pandemic.
For sellers with Covid-resistant businesses, now could be an excellent time to sell. For buyers, there are potential deals to be had, especially for those willing to look beyond the current pandemic-fueled environment and toward the future.
Why are Sellers Selling?
The report also noted that burnout is a significant factor impacting deal activity. Retirement continues to be the leading reason businesses sell. Still, burnout has become a quickly rising secondary reason.
The top five reasons that sellers are putting their business on the market are Retirement (35%), burnout (27%), health (15%), tax increases (7%), and general Covid fatigue (7%). The pandemic is still likely playing a role in the minds of many business owners who are looking to sell, which means that buyers could find good deals due to the pandemic. Buyers need to note that as pandemic conditions improve, many of today’s good deals will likely vanish.
While the IBBA and M&A Source Market Pulse report noted that it took longer for deals to close in most sections over the last year, there were exceptions to that rule. For example, there has actually been an acceleration in the $5 million to $50 million sector. On average, deals in that range take a mere ten months to close.
Top Buyers in 5 Sectors
Sellers will be pleased to hear that the report concludes that buyers are active, noting that personal services were trending in the Main Street market. In the lower middle market, manufacturing and construction/engineering dominated industry transactions.
The top buyers in the $0 to $500,000 sector were first-time buyers (39%), in the $500K to $1MM range, the top buyers were first-time buyers (37%), and in the $1MM to $2MM range, entrepreneurs (29%) lead the way. For the $2MM to $5MM range, first-time buyers (36%) and serial entrepreneurs (28%) led the way. For the $5MM to $50MM range, PE firms seeking a platform deal (33%) were the most represented group of buyers. Interestingly, with the exception of the $5MM to $50MM range, first-time buyers topped the list.
Buyers and sellers will be pleased to learn that the IBBA and M&A Source Market Pulse report clearly outlines how much the climate has changed from 2020 to 2021. Today’s market conditions are different than they were a year ago. You can still find great deals if you’re looking to purchase a business. Those looking to sell should find increased interest from an array of first-time buyers.