The M&A Marketplace for Small & Mid-Size Businesses
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The M&A Marketplace for Small & Mid-Size Businesses
Edward L. Fixen, President
BusinessQuest
Improvement in the M&A marketplace has been a bit unsteady but overall positive. Many business buyers and investors have been sitting on the sidelines since late 2007. At the same time, many business owners that were otherwise ready to sell their business and retire, had to delay selling because sales, earnings and the value of businesses have been down dramatically. As a result, there appears to be pent-up demand for business acquisition opportunities.
Although SBA and acquisition financing have not improved, private equity and alternative financing sources have attempted to fill the void. The lack of SBA and bank financing has required many sellers to provide seller financing. There also appears to be a general sense from many buyers that even though they aren’t sure when the economy will fully recover, they believe now is a relatively good time to acquire a business and position themselves for the recovery.
Unfortunately, the improvement in the M&A marketplace has not been an equal opportunity phenomenon. While the marketplace for lower middle market businesses with earnings of $1 million or more appears to relatively active, the marketplace for small businesses continues to languish. By way of example, most of our small businesses for sale are taking at least eight months to sale, while more recently we have been able to complete several deals for larger businesses in four to six months. In a normal market, the time to complete a small business sale is generally much shorter than a mid-size business sale. We believe this challenging trend for small businesses will continue until SBA lending increases and home equity values improve.
Nonetheless, there are still many prospective buyers seeking good acquisition opportunities in both the small and mid-size business markets. Manufacturing, wholesale, business services and some consumer related service businesses are in demand. As supporting evidence, Dealogic reported that Global M&A activity in July was at the highest level of the year. Interestingly, the number of business acquisitions year-to-date in the US is up and at its highest level since 2007 but the value of acquisitions is down and at its lowest level for the past three years.
Author: Mr. Fixen is an Accredited Business Appraiser (AIBA) and Certified Business Broker (CBB). Mr. Fixen is the President of BusinessQuest, a business valuation and M&A brokerage firm serving small & mid size, privately-held businesses throughout Los Angeles, Inland Empire and all of California and can be found at www.BusinessQuestBrokers.com.
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