The Situation:

During Q3 of 2019, national business-for-sale transactions declined 8.6%, with 2,454 small businesses reported sold, compared to the same period last year, according to the BizBuySell Insight Report, National Business-For-Sale Trends and Q3 2019 Transaction Activity.

And according to The IBBA and M&A Source Market Pulse Survey Report Q3 2019, 53% of business brokers surveyed believe that the talk of recession is driving down overall business valuations. In addition, those surveyed indicated that uncertainty over the upcoming presidential election and trade wars with China are having an impact on the M&A market.

For all the negative talk, it's important to note that transactions remain historically high. "Following a few record-breaking years in a row, 2019 has introduced interesting new wrinkles to the market," said Bob House, President of BizBuySell. "While uncertainty has slowed some of the momentum from 2018, the core indicators show plenty of opportunity still to be had for both buyers and sellers."

The Details:

  • Advisors cited “unrealistic value expectations” as the number one reason businesses don’t sell on both Main Street (<$2M) and Lower Middle Market ($2M-$50M) M&A markets.
    • Other key hurdles cited were downward business trends, funding issues, and disagreements over legal terms.
  • Retirement continues to lead as the number one reason business owners are trying to sell across all sectors, followed by burnout.
  • Despite a seller confidence dip, owners still remain positive.
  • Inventory of businesses remains relatively strong.
    • Revenues and profits are at all-time highs, meaning businesses are either adapting to economic changes, or the effects of the negative discourse have yet to be felt.
  • The median revenue of a sold business was up 4.5% from the same period last year.
    • Cash flow also grew 7.5%.
  • However, the median sale price of those businesses grew only 0.1% year-over-year.
  • The majority (83%) of Main Street business owners have no plan prior to taking their businesses to market.
  • More than one third (38%) of Lower Middle Market business owners have also not engaged in any advanced planning.

Key Takeaways:

It appears the market is being influenced more by sentiment than reality at this point, with unsubstantiated fears leading the way. However, none of us have a crystal ball to tell us how market forces and political events will unfold in the coming months. All the more reason that owners should prepare themselves now if they want to sell. And unfortunately, the research indicates that owners still aren’t engaging in crucial exit planning to ensure a successful transition outcome, their retirement, or the future of their businesses.

According to the IBBA Market Pulse report, even among business owners who have planned, only a few are working with any kind of professional advisor (e.g., CPA, wealth, attorney, broker) to discuss exit strategies a year or more in advance.

“It’s never too early to start planning! Every business owner should know when he or she wants to leave, how much is needed after taxes, and to whom they will transfer the business (family, management, strategic buyer or financial buyer),” said Laura Maver Ward, managing partner of Kingsbridge Capital Partners.

The Bottom Line:

If you are thinking about exiting your business in the near future, you need to start planning now or risk missing your window of opportunity! Now is the perfect time to prepare for your future, develop your Business Ownership Transition Plan, and take advantage of current strong market conditions to extract as much value as possible from the business you’ve worked so hard to build!


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