05 Aug National Report: Move to Buyer’s Market and Increasing Earnouts
Companies Continue to Sell
(Melville, NY) August 5, 2020 – While many small business owners are struggling to keep their doors open, a recent survey of business brokers and M&A advisors reveals about half of small and medium business owners can no longer get to the closing table as they face cancellations or delays in selling their businesses again in the second quarter
According to the Q2 2020 Market Pulse Report published by the International Business Brokers Association (IBBA), M&A Source, business brokers representing small businesses valued at less than $2 million report 36% of their deals have been delayed and another 16% were cancelled due to the COVID-19 pandemic. Similarly, M&A advisors representing businesses valued between $2-$50 million said 37% of their deals had been delayed and another 10% were cancelled, an improvement from Q1’s 60% cancelled or delayed deals.
Year-over-year trends show a slight downtick in cash at close in most sectors with corresponding increases in seller financing and/or earnouts.
“We expected to see an increase in earnouts due to COVID-19. With potential new shutdowns ahead and ongoing economic uncertainty, earnouts represent a way for buyers to reduce risk,” said Lisa Riley, Principal, Delta Business Advisors.
Seller-market sentiment dropped significantly in Q2 2020. In the $5 million to $50 million sector only 39% of advisors described the market as a “seller’s market” compared to only 13% of advisors in the less than $500 thousand sector. Across all thresholds, seller-market sentiment is at record lows since the Market Pulse began in Q2 2012, indicating a strong buyer’s market.
“It will be interesting to see if this is just a blip or a true trend over the next couple of quarters,” said Robert McCormack, Managing Partner, Murphy McCormack Capital Advisors. “Private equity still has a lot of cash and ticking time clocks on their portfolios. Fundamentally strong businesses will still find buyers, despite the strongest headwinds we’ve seen since the Great Recession.”
What’s selling? “In the Lower Middle Market, construction/engineering, manufacturing, and consumer goods are dominating industry transitions,” said Kyle Griffith, CBI, The NYBB Group.
About the Market Pulse Report
The Market Pulse Report compares conditions for businesses being sold on Main Street (values of $0-$2MM) to those being sold on the Lower Middle Market (values of $2MM-$50MM). The Q2 2020 survey was conducted July 1-15, 2020 and was completed by 361 business brokers and M&A advisors. Respondents completed 176 transactions this quarter.
About International Business Brokers Association (IBBA) and the M&A Source
Founded in 1983, IBBA is the largest non-profit association specifically formed to meet the needs of people and firms engaged in various aspects of business brokerage and mergers and acquisitions. For more information visit www.ibba.org or follow the IBBA on Facebook, Twitter and LinkedIn.
Founded in 1991, the M&A Source promotes professional development of merger and acquisition professionals so that they may better serve their clients’ needs and maximize public awareness of professional intermediary services available for middle market merger and acquisition transactions. For more information visit www.masource.org or follow the M&A Source on Facebook, LinkedIn and Twitter.
About The NYBB Group
The NYBB Group has been “leading the way” for entrepreneurs and small businesses since its founding in 2003. The firm provides mergers and acquisitions, business advisory, exit planning, and commercial real estate services to clients through the U.S.
As a company with a solid proven track record of success that is actively managed by Certified Mergers & Acquisitions Advisors and Certified Business Intermediaries, The NYBB Group have established ourselves as one of the most trusted and respected names in the business buy/sell marketplace. For more information about The NYBB Group, visit the website www.nybbinc.com
IBBA / M&A Source
Kyle Griffith, CBI
IBBA Market Pulse Committee / Board Member
Managing Partner – The NYBB Group