National Report: COVID-19 Pandemic Puts the Brakes on M&A Market, Biggest Quarter-to-Quarter Drop in Seller’s Market Sentiment Since Survey Started in 2013
April 29, 2020 – LOS ANGELES – While many small business owners are struggling to keep their doors open, a recent survey of business brokers and M&A advisors reveals that more than half of small and medium business owners can no longer get out the door as they face cancellations or delays in selling their businesses.
According to the Q1 2020 Market Pulse Report published by the International Business Brokers Association (IBBA), M&A Source, and the Pepperdine Private Capital Market Project, business brokers representing small businesses valued at less than $2 million report 46% of their deals have been delayed and another 11% were cancelled due to the COVID-19 pandemic. Similarly, M&A advisors representing businesses valued between $2-$50 million said 48% of their deals had been delayed and another 12% were cancelled. Only 4% indicated a business engagement increased in value.
For deals valued under $2 million, 53% of the cancellations were because buyers backed out. A quarter (24%) of cancellations came from sellers taking their business off the market and 19% resulted from changes in bank financing arrangements.
“We could see interest in Main Street deals coming from individual buyers who lost their jobs during the pandemic or see this as a reason to take more control over their own destiny,” said Craig Everett, PhD, director of the Pepperdine Private Capital Markets Project at the Pepperdine Graziadio Business School. “The Small Business Administration has a program designed to fuel acquisition activity right now, so we could actually see a jump in individual buyer activity as people rethink their work-life choices.”
Seller-market sentiment dropped significantly in Q1 2020. In the $5 million to $50 million sector only 55% of advisors described the market as a “seller’s market.” That is a 27-percentage-point drop from Q4 2019, the largest quarter-to-quarter drop in the Market Pulse 31-quarter history.
“When the economy is strong business owners tend to hold off on selling hoping for even stronger valuations. The pandemic, however, will push many of those sellers into the market as they try to exit before an extended recession,” said David Ryan, advisor with the Upton Financial 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 Q1 2020 survey was conducted April 1-15, 2020 and was completed by 416 business brokers and M&A advisors. Respondents completed 296 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. The IBBA is a trade association of business brokers providing education, conferences, professional designations and networking opportunities. For more information about IBBA, visit the website at 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 about the M&A Source visit www.masource.org or follow the M&A Source on Facebook, LinkedIn and Twitter.
About Pepperdine University Graziadio Business School
For more than 50 years, the Pepperdine Graziadio Business School has challenged individuals to think boldly and drive meaningful change within their industries and communities. Dedicated to developing Best for the World Leaders, the Graziadio School offers a comprehensive range of MBA, MS, executive, and doctoral degree programs grounded in integrity, innovation, and entrepreneurship. The Graziadio School advances experiential learning through small classes with distinguished faculty that stimulate critical thinking and meaningful connection, inspiring students and working professionals to realize their greatest potential as values-centered leaders. Follow Pepperdine Graziadio on Facebook, Twitter, Instagram, and LinkedIn.
Contact:
Pepperdine Graziadio Business School
Hillary Doran
Associate Director of Marketing
310.568.2339
[email protected]
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