The state of the M&A and Business Brokerage business is very positive. Several reports show the activity to be significantly higher over last year with the future looking very positive. A recent report said Small Business Sales were up 6% over last year which was a record breaking year. Speaking of records, this same report said the Median Cash Flow of all recent business sales hit an all time high. With revenues and profitability up, the sales price multiples are rising also. These increases lead one to believe the market is currently balanced, where both buyers and sellers are receiving value from the transactions. One might conclude that the current market may be characterized as neither a seller’s or a buyer’s market but things might change in the future. Why?
It is a well publicized fact that about 10,000 baby boomers reached age 65 every day and for the next 15 years. Did you know that approximately 70% of all businesses are owned by people over the age of 53. The owners of these business will probably will need to liquidate their ownership to try to fund their retirement or capture the wealth they have established over the life of the business. If all of these business owners over age 53 want to sell their business, the amount of capital required to purchase them would be in the neighbor hood of $10 Trillion dollars. Where is this capital going to come from? These is quite a bit of “dry powder” with the PEG’s and of course there are investors and entrepreneurs looking for businesses but the amount will be far less than what is needed. Less than enough money chasing too many business for sale will drive down the values significantly.
Of course this is not the scenario right now but in the coming 3-5 years, the market will be turning from the current sellers market to a neutral market to a buyers market with the influx of Baby Boomer owners wanting to exit their business. Can an owner really wait to sell their business? If they do not sell now, they might have to wait until the next seller’s market which might be 8-10 year from now. But why wait?