Third Quarter 2013 Business for Sale Market Update

The International Business Broker Association (IBBA) recently released a third quarter report discussing the current state of the market. The intention is to provide an accurate understanding of the major factors affecting the buying and selling of businesses. This report focuses on two major markets, separated by the sale value.The Main Street market includes all businesses that are valued at $2 million or below. The lower middle market includes businesses valued between $2 million and $50 million. This article will provide a comprehensive overview of the major points covered in the quarterly report, aiding business owners wishing to sell or buy a company.Market OverviewCertain markets within the industry are favoring the buyers while others are favoring the sellers. The Main Street market is currently acting as a buyer’s market. The lower middle market, on the other hand, is in favor of the seller’s. Analysts predict that the overall volume of sales occurring over the next 3 months will continue to increase. Business owners are continuing to list their company on the market, while the number of sellers also continues to increase.Reasons for Buying and SellingRecent surveys have indicated that the dominate reason business owners are selling their companies is for retirement purposes. Buyers that are acquiring companies for greater than $5 million are made up, equally, of private equity firms and existing companies that are expanding. Businesses that are selling for $2 million or less are being purchased by individual buyers. These buyers state that their primary motivation to buy a company is to be in charge and experience the empowerment and flexibility of being a business owner.Multiplier ValuesExamining average multiplier values occurring recently provides insight into the state of the market. Businesses valued in the Main Street market have been selling at a multiplier of 3.0 or less. Those companies valuing at less than $500,000, utilize a multiplier of 2.0. The lower middle market depicts a vastly different image, indicating a strong seller’s market. Companies valuing between $5 million and $50 million contain much higher multipliers, averaging 5.8. The companies that fall between $2 million and $5 million contain an average multiplier of 4.3. It is a good idea to keep these figures in mind when in the market to purchase a company. They will provide some guidance on whether or not the seller’s asking price is a fair and reasonable.Reasons for Deal Termination
Having an understanding of the issues that most frequently cause a deal to be terminated will aid you in implementing precautionary measures and, successfully, avoid these problems. The number one reason that a deal is terminated is due to unrealistic expectations. This includes unrealistic valuation and additional demands. Both sellers and buyers can avoid this by hiring a professional to aid in the valuation process.The statistics and information that has been reviewed are the most important findings that were included in the most recent quarterly report. Before embarking on a business buying or selling adventure, become adequately prepared by thoroughly reviewing this information. The contents of this article will put you in a position to knowledgeably negotiate the sale of a business.

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