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Tax Reform Will Create Sizable Uptick in Sales of Small Businesses in 2018

February 26, 2018, 07:14 AM
Filed Under: Economic Commentary

Nearly three-quarters (73 percent) of business brokers and advisors surveyed predict the volume of small businesses sold (under $50MM) will increase in the next 12 months according to the Q4 2017 Market Pulse Report published by the International Business Brokers Association (IBBA), M&A Source, and the Pepperdine Private Capital Market Project. Sixty-five percent of advisors say that the Small Business Administration rules lowering minimum down payments from 25 percent to 10 percent will lead to more business sales this year.

“Small business owners seeking to sell their business in 2018 have cause to be bullish,” said Warren Burkholder, CBI, President of NEVRG, Inc. “With the corporate tax rate dropping to 21 percent and the repatriation of overseas capital, companies will have more capital to allocate to acquisitions. Add to that heavy competition in the marketplace which means even more companies will be pursuing smaller market transactions.”

Compared to a year ago, optimism has grown as advisors anticipate greater deal flow, increased business exit opportunities for sellers, opportunities for growth, better closing rates, and an improvement in general business conditions. The survey also found that strong economic optimism is resulting in market sentiment for sellers rising in all market sectors. Compared to a year ago (Q4 2016) the biggest increases in seller market sentiment were for businesses valued in the $500K-$1MM range (jumping from 40 percent in Q4 2016 to 53 percent in Q4 2017) and for businesses valued in the $5MM-$50MM range (increasing from 68 percent in Q4 2016 to 79 percent in Q4 2017).

“Global private equity funds raised $453 billion in 2017, more than any year on record. Meanwhile, business optimism is high and corporations are stacked with cash. It’s all going to drive competition,” said Craig Everett, PhD, Director of the Pepperdine Private Capital Markets Project. “No one is going to back down, particularly private equity buyers who need to put that cash to work and have more flexibility to pursue creative deals such as minority investments.”

Also, notable in this survey is a small, but growing trend of sellers going to market because of an unsolicited offer. Thirteen percent of business owners selling businesses valued between $5MM-$50MM sold their business as a result of an unsolicited offer. Heavy buyer competition and a strong lending market mean that many buyers are getting aggressive about their acquisition strategy and are searching out passive sellers.

The Market Pulse Report compares conditions for businesses being sold on Main Street (values of $0-$2MM) to those being sold in the Lower Middle Market (values of $2MM-$50MM). The Q4 2017 survey was completed by 264 business brokers and M&A advisors.

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