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Market Pulse Survey - 4th Quarter 2015
Presented by IBBA and M & A Source in Partnership with Pepperdine University
BUYER VS. SELLER MARKET
Year over year, buyers are increasing their advantage in the Main Street market, particularly for the smallest businesses. Meanwhile, the seller's market sentiment has improved, year over year, in the Lower Middle Market (LMM).
WHAT MOTIVATES THEM?
Buyers in the Main Street market are most often motivated by a desire to buy a job. That is, the buyer is looking to leave corporate America and be active fulltime in the business. Buyers in the lower middle market are more often expanding an existing business through a horizontal or vertical add-on. Q4 saw an increase in "growth through acquisition" motivated purchases across almost every market sector.
HOT INDUSTRIES
Service companies (business and personal) continue to lead Main Street market activity in Q4, with a strong showing in the lower middle market as well. Manufacturing companies led the lower middle market.
WHERE DO THEY COME FROM?
As deal size increases, buyers are sourced from a wider geographic area.
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Exceptions To SBA Loans: How To Get A 25 year Loan
The exceptions to the standard vanilla SBA loan are numerous. Under the SBA program there are two type of loans. The 7(a) program is the most common. Interest rates are typically 2% to 2.5% above prime rate and are amortized over 10 years. These are used to purchase business assets.
The 504 loan is used to buy real estate. This loan is usually amortized over 25 years with an interest rate that is about 1.5% over prime.
Here is the trick to help you reduce your monthly interest and principal payment. If you are buying a business and the real estate is included in the purchase and if the loan amount for the real estate is greater than the loan amount for the business, then it is highly possible to have the entire loan for both business and real estate be wrapped into the 504 loan. This means the monthly payment will be significantly lower since you will be paying over 25 years rather than 10 years.
A good SBA lender can help you navigate these tricky waters.
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Rent-A-Prep Staffing
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| | From left-to-right: Danielle & Jonathan Schlech (Buyers), Cynthia Sutton (Seller), Marcia Bowron (CBB Broker) |
The Seller, Cynthia Sutton, will be retiring and moving to Austin after training the Buyers, Danielle & Jonathan Schlech. The Schlechs wanted to return to Houston from Florida, and buying this business gave them that opportunity. Since the Seller was an absentee owner, the buyers felt that under their full-time efforts they would enjoy higher profitability and an excellent return on their investment. Due diligence went very smoothly, and since seller financing was part of the deal, we were able to get the deal closed within a month of signing the purchase contract.
This company is a very well-established hospitality staffing firm offering on-call professional wait staff, bartenders, bussers, dishwashers, and setup/tear down labor for trade shows and special events. Having been in business since 1987, they have a well-respected name and loyal customer base.
Marcia Bowron listed and sold the business.
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Speedy Printing of Texas
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From left-to-right: Nancy Barlow (Seller),
Peggy Tate (CBB Broker), Ivette Chapman (Buyer)
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This established, stable commercial printer has been around since 1974. The Seller, Nancy Barlow, had been working for the company 16 years and bought the business from her father about 8 years ago. Approximately 95% of its revenues are from well-diversified, repeat business accounts. The company has enjoyed very low employee turnover, several of whom have been with the company over two decades. With these value drivers, this is a low risk business, which is why Buyer, Ivette Chapman, with a BS in electronic engineering and a MBA in international business, decided to buy this company at 96% of asking price.
Peggy Tate listed and sold this business.
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Ask The Experts
Question:
I've been trying to buy a small business for over two years. I found three that interested me and I entered into contracts to purchase. But, it's been a problem to definitively verify all the financial data. Could it be the specific type of business that I'm targeting?
Answer:
No matter if you are a first time buyer or purchased several businesses, the financial part of due diligence on a small business is not usually a low hurdle. I've been a buyer, I understand your dilemma.
It can sometimes take weeks or months for a seller to gather everything required to market the business for sale. Some do a great job and some not-so-much. In the "not-so-much" instance, a buyer should enlist the help of a CPA (one that is experienced in business sales), not to make a decision for them, but to help them better understand the financial paperwork.
My recommendation is to be open minded and don't expect to see every 'i' dotted or every 't' crossed. The owner may have been captaining the front cab of the operation rather than engineering the caboose. Their concentration is typically on running the business rather than maintaining a back-end corporate-style accounting department.
As a buyer, the most important thing is to verify the profitability of the business, which may or may not be represented on the bottom line on the tax return. Verify as much as possible to get the gut feeling you need to make an informed decision. With a little patience in digging through less than perfect financial documentation you might just find that golden opportunity.
Statistics indicate that 95% of all buyers that begin the search to buy a business never succeed in doing so. And, only 1% of the population are small business owners. It's really comes down to that "leap of faith" mentality that one must have to ultimately achieve business ownership.
It took me two years and three due diligence adventures before finding my current business....12 years and running.
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Texas Economic News
