13 Apr Size Doesn’t Have To Matter
The International Business Brokers Association (IBBA), in partnership with Pepperdine University’s Private Capital Markets Project, recently released its “Q4 2014 Market Pulse Report” detailing business transaction trends for Main Street and Lower Middle Market companies.
Sixty-nine percent of survey respondents felt it was a buyer’s market for businesses valued under $500,000. For businesses between $500,000 and $1 million, 57% thought it was a SELLER’S market. Sixty-five percent of brokers and advisors said it was a seller’s market for businesses with values between $2 and $5 million. And for deals from $5 to $50 million, 77% deemed it a seller’s market.
Why are larger businesses more sought after?
It’s simply a matter of time, scalability, risk, and return on equity.
It takes a lot of time to pursue and close an acquisition. Buyers want to purchase the largest business they are able, because they might as well make the most of the time they spend. In addition, larger businesses are generally deemed to have better management and systems in place, and thus require less “help” after the acquisition. Buyers can focus on growth rather than on building basic systems and hiring capable personnel.
More “established” businesses can be readily scaled.
Larger businesses also tend to be more diversified in product, customer base, and geography, which lowers risk. And for all these reasons, banks tend to be willing to lend more aggressively to them, which can boost returns on equity.
So it’s true that larger businesses will tend to have more buyers interested in acquiring them. More buyers means a seller’s market. But as the seller of a smaller company, you are not going to be changing your stripes in a matter of months or years. You fight back against the current by packaging professionally and effectively, and marketing your business smartly. You must run a process that succeeds in identifying and courting multiple high-quality buyers. Again, small businesses can mitigate their disadvantages by running a process that identifies and courts multiple high quality buyers, and sells the characteristics buyers desire. In doing so, create more of a “seller’s market” for themselves. It can be done. We do it all the time.
The business-for-sale marketplace is wild and wooly. If you are the seller of a small business, it will try to push you around. Don’t accept it. Push your own agenda. We can help.