A survey conducted quarterly by Market Pulse found that small business sales were strong in 2015. The Pepperdine Private Capital Markets Project, M&A Source, and the International Business Brokers Association (IBBA) published the joint report for Q4 2015. The survey was completed by 348 business brokers and M&A advisors in 38 states.
In the Main Street market that generally covers smaller commercial establishments found in towns across the US, over 60 percent of M&A advisor respondents met or surpassed 2014 figures. This growth has provided advisors with an optimistic outlook for 2016. They anticipate a 60 percent increase in new deals, as well as increased deal flow, exit opportunities for sellers, and opportunities for growth.
The confidence in the 2016 markets comes off the heels of a record 2015, wherein the Small Business Administration distributed over $23.6 billion in loans. Seventy-one percent of respondents in the study who closed deals below $2 million reported using traditional lending methods. That was also a factor in the increasingly active Main Street Market. There is some fear in the market, but according to Joe Lindsey, CBI, M&AMI, President of JLC, Inc. and M&A Source Chair, only 19 percent of the survey respondents indicated some pessimism that conditions will deteriorate.
Deals took longer to close, but Craig Everett, PhD, director of the Pepperdine Private Capital Markets Project suggest that this is indicative of more intensive transactions. Typically the larger the deal, the longer it takes to close, he said. In the Lower Middle Market, where the seller’s market attitude has improved, Everett added that one way buyers win deals is to show they can close more quickly in order to differentiate themselves from a large pool of active buyers. Deal multiples remain strong but aren’t expected to grow in 2016, and advisors predict that market conditions will stay the same in regard to debt financing.
Q4 2015 revealed a seller’s market that is expected to carry into 2016. Small businesses sold for approximately 91 percent of their asking price and Lower Middle Market businesses received 99.5 percent of the internal benchmark figures set by advisors and sellers. Buyer profile varied by deal categories, with first-time buyers making the bulk of purchases in the smallest deal category (businesses valued at under $500K). In the largest deal category (businesses valued between $5MM to $50MM), private equity made up the highest percentage of buyers.
