Current Market Trends for Main Street and Lower Middle Market Businesses

The International Business Broker Association (IBBA), M&A Source and Pepperdine University’s Graziadio School of Business and Management present a survey called “Market Pulse” that outlines the trends in the mergers and acquisition industry. The latest survey 4th quarter 2014 Market Pulse survey¹ was completed by 197 respondents, with a majority having at least 10 years of experience in the M&A industry.

The survey breaks down the survey into two categories, main street businesses ($0-$2MM) and lower middle market businesses ($2MM-$5MM). 

The survey highlighted the biggest barriers and contributors to getting deals done in 2014. Valuation was the top barrier in both categories. A major reason to have a valuation adviser work with you before you are ready to sell is to create clear and realistic expectations. This will help to establish the right time to sell and contribute to reaching a deal.

Top Barriers¹

Valuation

Financing

Top Contributors¹

Clear and realistic price expectations

Larger buyer pool

“The good news is that the biggest mistakes are all under a seller’s control. It just comes down to proper planning and having the necessary guidance from a business broker,”¹ said Cress Diglio, CBI, M&AMI, Transworld Business Advisors and Chair of the IBBA Board of Directors. “This ties right back to the leading factor in getting deals done—and that’s clear expectations about your company’s value in today’s market. That has direct impact on your chance of a successful sale.”¹

An interesting statistic that came from the survey was 65% of brokers characterized the $2MM-$5MM sector as being in a seller’s market.

The main street business category showed a decline in seller financing and a greater shift toward combinations of buyer equity and senior debt. This is consistent with other market indicators on small business lending, including news from the U.S. Small Business Administration indicating that FY 2014 was a record year for the organization, with a 12% increase in the number of loans and a 7.4% increase in dollar amount over 2013. This is consistent with the feedback that we have received that bank financing at all levels has been making a comeback. Since financing is a top barrier this should bode well for sellers.

1. “Market Pulse Quarterly Survey Report Fourth Quarter 2014.”  Feb. 2015. Web. April 28, 2015.