The years-long hot market for businesses may start to cool, perhaps as soon as this year. That's the finding of a survey of brokers and advisers who help owners and buyers complete sales of small and mid-size businesses.
The survey conducted by researchers at Pepperdine University's Graziadio School of Business and two industry groups, the International Business Brokers Association and the M&A Source, questioned 319 business brokers and mergers and acquisitions advisers. Eighty-three percent of the survey participants said the strong M&A market will be over within two years. Nearly a third of the participants were more pessimistic, saying it wouldn't last through 2019.
The problem is the economy. Participants said they were concerned that overall business conditions will decline, putting pressure on companies' profits and making them less desirable to buyers.
The survey's findings are partly in line with one released last month by BizBuySell.com, an online market place for businesses. That survey also forecast that the market for small businesses would remain strong this year. However, it did not question business brokers about their outlook beyond 2019.
The Pepperdine survey found, as the BizBuySell.com survey did, that retirement is still the primary reason why businesses are going on the block. The Pepperdine survey, which broke sales down according to company size, found that 80 percent of owners of companies priced in the $1 million to $2 million range were heading for retirement. Forty-two percent of companies priced in the $500,000 to $1 million range were retiring, as were 31 percent of those whose companies sold for up to $500,000. A possible reason for the lower percentage among smaller companies may be the fact that many baby boomers have already sold their businesses -- when sales began soaring in 2013 following the Great Recession, boomers were most of the sellers.
But worries that the economy will weaken this year -- a concern raised by economists, some small business owners and the stock market -- may be prompting some owners to retire sooner rather than later.
"People are thinking about getting out, before the next recession," said Laura Ward, managing partner of M&A advisory firm Kingsbridge Capital Partners, who was quoted in the Pepperdine survey.
The survey was conducted between Jan. 1 and Jan. 15.
--The Associated Press