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Privately-Held Business Marketplace Blog

The Market For Selling A Privately-Owned Business

Posted by Ed Fixen on Friday, October 14, 2011 7:22 AM


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The overall market for selling privately-owned business acquisitions continues to be highly industry dependent and size driven. Our business brokerage firm has begun to see minor but measurable improvement in the market since the beginning of 2010 even though it has been somewhat cyclical over that period. Even during the recession we have been able to successfully help our clients sell businesses of various sizes and industries; however we have observed some general business sales and acquisition trends during that time. One of those trends is that the market demand for businesses in certain industries and certain size criteria seem to remain strong and stable compared to other industries.

 

Of course, the market strength of a particular industry should not be confused with the chances of successfully selling a specific business. The probable success of an individual business sale is dependent on many detailed factors unique and specific to that particular business that determine its’ salability. For example, factors that affect the salability of a particular business include items such as fair market value pricing, fair market terms, profitability, favorable growth opportunities, good books & records, diverse customer base and strength of the management/employment team.

 

On a broader scale, there are two primary characteristics we have observed that seem to be reasonably good predictors of the overall market for selling a business. In general, the two key market factors are industry and business size. With regard to industry, there are several factors that seem to create a strong market for any particular industry. Generally, the key factors for business acquisition activity within a specific industry appear to be largely related to industry growth and industry profitability which seem to drive the size of the investor pool seeking acquisitions in a specific industry. Industry growth and profitability are fairly obvious drivers of the demand and market for a business because the potential for strong earnings, revenue growth and the associated return-on-investment are very attractive. Fortunately for some of the slow growth or moderately profitable industries, the number of buyers with skills and experience appropriate to certain industries helps to create a relatively stable demand and overall market in those industries as well. For example, even though some business services such as janitorial or machine shops are not high growth industries as a whole, the number of potential buyers in the market to acquire these types of companies is fairly high and the demand strong.

 

From our perspective, business size also seems to have become a strong indicator of market demand recently. Smaller businesses with revenues under $1 million have been disproportionately affected by the recession and the pool of small business buyers for these businesses also appears to be the group most dramatically affected by the recession. Conversely, the pool of buyers/investors seeking medium and large business acquisitions seemed to rebound in early 2010 and continues to be strong going into 2012. Therefore, the market or demand for medium and large businesses, even in moderate growth or moderately profitable industries, is good.

 

Some examples of industries that we have found to have a strong buyer market for acquisitions include:

 

·        Manufacturing of capital goods – small, medium or large

·        Manufacturing requiring high technical skills and equipment – small, medium or large

·        Business service companies, particularly related to healthcare, janitorial, education and staffing – medium or large

·        IT & software companies - small, medium or large

·        Wholesale companies – medium or large

 

These are just a few of the more notable industries with strong acquisition markets that we have observed directly. Of course, the business sales and acquisition market is generally always strong for any individual business with solid credentials related to stability of income, regardless of industry.