Despite Increased Confidence, Sellers Lacked an Intentional, Proactive Exit Strategy in Q4 2016
April 3, 2017 (Independence, Oh) Nearly three-quarters (74 percent) of business brokers— professionals who aid in the buying and selling of businesses—expect an increase in new clients coming to market in 2017, according to the quarterly Market Pulse Report published by the International Business Brokers Association (IBBA), M&A Source and the Pepperdine Private Capital Market Project.
Compared to one year ago, brokers are feeling an increased sense of optimism regarding closing rates, business exit opportunities and business conditions. When asked at the end of 2016 about their outlook for 2017, three-quarters of respondents said they expected a net increase in new deals, compared to 60 percent who expressed optimism for 2016.
“Small business optimism is on the rise following the election,” said Craig Everett, PhD, assistant professor of finance and director of the Pepperdine Private Capital Markets Project. “If President Trump is successful in fulfilling his campaign pledges to lower taxes and create a more business-friendly climate, we should see increased activity in the market. If the corporate tax rate drops from 35 percent to 15 percent, as he has proposed, businesses will have more capital to push into expansion and acquisition.”
The number one reason sellers go to market consistently remains retirement. In Q4 2016, respondents were asked for the first time how many of their clients had planned for a business sale. Responses showed that fewer than half (43 percent) had an intentional, proactive exit strategy.
“We are seeing that many retirement sales are rushed, rather than thoughtful, planned events,” said Lou Vescio, CBI, M&AMI, Principal, Coastal Business Intermediaries, Inc., IBBA Chair. “My concern is that business owners who do not plan ahead for their retirement typically get a much lower value because they decide to quickly sell their business due to high emotion, pressure or burnout.”
The Market Pulse Report compares conditions for businesses being sold on Main Street (values of $0-$2MM) to those being sold in the Lower Middle Market (values of $2-$50MM). The Q4 2016 survey was completed January 1 - January 15, 2017 by 350 business brokers and M&A advisors, representing 39 states.