Business owners contemplating the sale of their companies may have more to consider based on a recent survey that suggests they should now take advantage of a peaking market or potentially face a wait until the market again cycles to higher values.
According to the Q1 2019 Market Pulse Report published in collaboration by the International Business Brokers Association (IBBA), M&A Source and the Pepperdine Private Capital Market Project, seller’s market sentiment has hit its lowest in years. Four out of the five market segments studied show a marked drop in percentage points. The one exception was businesses valued from $5 million to $50 million, which saw a 4 percent rise in seller’s market sentiment, indicating a good time for those in this segment to sell.
The report compares business being sold on Main Street, valued from nothing to $2 million, to companies being sold in the Lower Middle Market, valued from $2 million to $50 million. The final sale price varied depending on its valuation, but lower middle market companies had the highest final sale while small businesses had the biggest drop from their asking price.
Lower middle market business owners are also more proactive, making advanced plans to sell, which analysts say can help sellers receive the highest market value and speed up the process of selling their business. Conversely, the report found that 90 percent of small business owners do not plan for the sale of their business before engaging with buyers.
“Low market sentiment is a sign the market may have peaked and more people are expecting a correction in the year or two ahead,” said Craig Everett, PhD and Director of the Pepperdine Private Capital Markets Project at the Pepperdine Graziadio Business School. “Sellers should consider selling now or waiting another few years before the market will cycle back up to current conditions. Any market pessimism or uncertainty will drive down value across the board.”
