Is 2018 the year you sell?
A number of factors, including record-high 2017 M&A activity and the passage of tax reform legislation, indicate that 2018 will be an excellent year for business owners to move forward with transitioning out of their businesses. If you’re a business owner who is thinking about selling or transferring your business to someone else within the next few years, the time to start preparing is now!
Increased 2017 Q3 M&A Activity
2017 is on track to set a record for the highest number of businesses changing hands since 2007, according to BizBuySell.com's Third Quarter 2017 Insight Report. And, there was an increase in M&A activity by private equity and strategic corporate buyers in Q3 of 2017 compared to Q2, according to the Q3 2017 Market Pulse Report published by the International Business Brokers Association (IBBA), M&A Source, and the Pepperdine Private Capital Market Project. The report attributes the increased activity largely to the strong demand for add-on acquisitions.
Approximately 55% of business brokers and advisors who were surveyed as part of the Q3 2017 Market Pulse Report expect the shrinking labor market will cause more business owners to expand through acquisition. In Q3, around 90% of deals in the $5MM-$50MM range were acquisition or add-on growth opportunities, compared to 60% in Q2 2017.
The Impact of Tax Reform
While tax uncertainty impacted the larger M&A market, as U.S.-targeted deals fell to their lowest rate since 2013, it had little impact on the smaller business market, which represent deals valued under $50MM. According to the report, “this administration’s effort to reduce regulatory tax burdens have only provided clarity around taxes that support family succession plans.”
And the report indicates that the planned “tax reforms will only increase buyer demand and strengthen the M&A market.” Also, lower corporate tax rates could provide increased capital for acquisitions. Additionally, the new tax bill will reduce the corporate tax rate from 35% to 21%, which could mean a higher return on the investments for private equity firms.
Seller Sentiment is Still Relatively High
According to the Q3 2017 Market Pulse Report, seller market sentiment is positive, reaching an all-time high in the $1MM-$2MM market since the survey began in Q2 2012. The report indicates that for sellers, valuations remain high, which is a compelling reason for them to enter the market.
BizBuySell.com’s 2017 Buyer-Seller Confidence Index reports that 60% of business owner respondents said they are confident they would receive a price that met their expectations if they sold their business today. However, there is an indication that owners might be concerned about an upcoming peak in the market: only 41% of owners believe their business would be more valuable next year, down from the 48% who believed the same in 2016.
Are You Prepared?
There are numerous indicators that 2018 could be a great time for business owners to transition out of their businesses, and if you’re thinking about selling within the next year, you want to make sure that you’re ready -- from a market perspective and from a financial and personal standpoint.
The best way to maximize your business value, achieve your goals, and increase the likelihood for a successful business transition, is to be prepared!
When done correctly, business ownership transition planning aligns an owner’s goals and objectives with the best sale or transfer options available and provides a comprehensive roadmap to a successful outcome.
The beginning of the year is a perfect time to start your business transition planning process. Planning early will allow you to positively affect the outcome and give you a greater chance of achieving your goals in 2018 and beyond!
