I know that I'm a little late with this post, but this article is important to those of you considering buying a business. Here Urvaksh Karkaria at the Atlanta Business Chronicle describes businesses selling in the Metro Atlanta area, but the information my very well apply to your locale. As we discuss in class, Entrepreneurship for Transitioning Warriors, when a veteran plans to buy a business there are many factors that must be understood. One of those is the changing market for businesses. Prices rise and fall just like with other commodities. It is important for veterans to understand these price changes and factor the changes into the decision making process.
Karkaria writes---The small business transaction market is expected to see a surge in 2017 — thanks to the Trump effect.
“For business owners (and buyers), most are ecstatic to see a businessman in the White House,” said Sara Burden, CEO of Atlanta business brokerage Walden Businesses.
Optimism around Donald Trump’s presidential election Nov. 8 could extend last year’s rally in the small business transaction market in metro Atlanta.
The median sale price of small businesses rose to $250,000 in 2016, compared with $170,000 a year ago, according to online business listing service BizBuySell.com. Of the 245 closed transactions reported to BizBuySell, Atlanta businesses that sold last year had a median annual revenue of $510,207, up from $362,427 a year earlier.
Brokers have expressed an optimistic view of a Trump administration. About 69 percent said they believe Trump will improve the small business environment in 2017, according to BizBuy’s December survey. Nearly 60 percent of business brokers believe Trump’s policies will encourage more buyers to enter the small business market.
“While Trump has expressed many ‘pro-business’ policies, it will certainly be interesting to watch how he handles issues like the final ruling on overtime pay changes, changing health care regulations and global market conditions, and how these changes affect the business-for-sale market,” noted Bob House, president of BizBuySell.com and BizQuest.com.
Nationally, 7,842 closed transactions were reported in 2016, the highest yearly total of small business sales since BizBuySell started tracking data in 2007. Despite the increased demand in 2016, owners did not respond with higher prices. The median asking price remained flat from 2015 at $225,000, while the median sale price increased half a percentage point to $200,000.
Key financial indicators trended upwards in 2016, likely enticing more buyers and sellers into the market, spurring transactions, House noted.
“The active market coupled with uncertainty heading up to the November election seems to have spurred a number of owners to decide 2016 would be a good year to exit,” he said. “Based on our Buyer-Seller Confidence survey that we conducted in September, many owners expressed concern over a Clinton administration and the continuation of programs that raise wage costs for small businesses (minimum wage, health care, overtime regulations, etc.)”
House noted a significant loosening of bank lending since the recession and he expects reasonable access to capital to continue in 2017. “Still, buyers should watch for more potential federal interest rate hikes in 2017, and consider how higher rates may impact their loan options,” House said.
2016 began a little slower for getting deals closed at Walden Businesses, though transactions surged toward the fourth quarter and going into the first quarter of 2017.
“We’ve seen some downward price adjusting from the buy-side as buyers hold firm with lower multiples,” Burden said. “I truly don’t see much of an escalation in sale prices this coming year in our market segments (light manufacturing, distribution and business-to-business services.)”
In early 2016, smaller deals were the ones getting to the closing table, Burden said. “Buyers are still fighting huge red-tape issues with SBA (Small Business Administration) loans on deals up to $5 million. On larger deals, the private equity buyers were much slower to make decisions this past year,” she said. “I think people were in a stall mode most of the year — just not knowing how the election was going to come out.”
Abraxas Business Services had a good 2016 — not because of an overall increase in sale prices, but because its mix of businesses trended toward larger deals.
“We are chopping with a meat cleaver and measuring with a micrometer — averages become more accurate with increasing numbers of transactions,” CEO David Chambless said. “The market isn’t pricing deals higher, it is that a few outsized (or very small) deals will really impact the year’s ‘average.’”
Demand for small businesses is being stoked by macroeconomic trends, such as increasing interest in acquisitions as more workers leave corporate America, or get downsized and turn to entrepreneurship.