According to a new report, for the first time ever, individuals were the largest buyer group for businesses that were valued under $5 million. The new report is titled 2013 Market Pulse Quarterly Survey Report and was published by Pepperdine University’s Graziadio School of Business and Management, the International Business Brokers Association, and M&A Source.
For transactions valued at more than $5 million the most common buyers were existing companies looking to grow through acquisition (40 percent), followed by private equity platforms (30 percent), and private equity add-ons (20 percent).
“As our economy picks up steam, more high-net worth individuals are transitioning from employees to business owners,” said George Lanza, president of Plethora Businesses. “Many of these individuals are buying businesses for job security or because they anticipate a better ROI than with other investments.”
According to the report, the majority of business brokers that sell businesses valued up to $2 million think it is a buyer’s market right now. For transactions valued at less than $500,000, 78 percent say supply and demand is in the buyer’s favor.
“The transition from a seller’s market in the third quarter of 2012 to the current buyers market reflects more confidence in our economic recovery,” said report co-author Dr. John Paglia, director of the Pepperdine Private Capital Markets Project and associate professor of finance at Pepperdine University’s Graziadio School of Business and Management. “For deals under $500,000, the majority of buyers (73 percent) are coming to the table with cash – this is an important sign that our economy may be turning around.”
International buyers made a strong appearance in this quarter’s survey, representing 20 percent to 30 percent of buyers for businesses valued at $1 million and above. Previous reports (since Q2 2012) haven’t seen international buyers exceed 8 percent in any sector.
For the second quarter in a row, retirement ranked as the number one reason driving business sales in the lower middle market sectors, followed by owner “burn-out”. Business brokers and M&A advisors around the country reported that client loads increased at a faster rate compared to any other quarter since the survey started in June 2012.
“Trends show a growing number of businesses on the market and we can expect listings and engagements will continue to increase as baby boomers look to retire and sell their businesses,” said Jim Afinowich, president of Fox & Fin Financial Group.
How are lower middle market transactions being structured? The new report shows that buyer equity led every sector followed by relatively equal amounts of seller financing and senior debt. For businesses valued up to $5 million sellers are holding around 20 percent to 25 percent in financing. “These national trends confirm that seller financing continues to be a key component in completing a transaction,” said Scott Bushkie, principal of Cornerstone Business Services. “Business owners who aren’t prepared for that will have a much lower chance of successfully completing a sale.”
For a FREE copy of the first quarter 2013 Market Pulse Quarterly Survey Report click HERE.
© 2013 PEPD • Private Equity’s Leading News Magazine • 5-8-13
