The boom market in small businesses appears to have reached its peak and is now waning.
That's the finding of a quarterly survey of brokers and advisers who help owners and buyers complete sales of small and mid-size businesses. The survey was conducted by researchers at Pepperdine University's Graziadio School of Business and two industry groups, the International Business Brokers Association and the M&A Source.
The survey found that owners hoping to sell their companies are less optimistic about a sale than they were a year ago. The survey, which looked at companies valued at up to $50 million, found the drop in its measure of optimism was particularly notable among owners of businesses in the $1 million to $2 million range; it fell 6 percentage points from a year earlier.
"This is the first time in years that we've seen four out of five (company value) sectors report a dip in seller market sentiment. This is a sign the market may have peaked and more people are expecting a correction in the year or two ahead," Craig Everett, director of the Pepperdine Private Capital Markets Project at the Graziadio Business School, said in a statement.
Owners of larger companies in the survey, valued at between $5 million and $50 million, were more upbeat; their optimism levels rose 4 percentage points from a year earlier.
The survey was conducted in the first half of April. Its findings are in line with those of a report released in late April by BizBuySell.com, an online marketplace for small businesses. That report, which counted the number of closed sales transactions for small businesses, also found the market was slowing, dropping 6.5% during the first quarter from the same period of 2018, following a 6% fourth quarter drop.
Pepperdine and the business groups didn't report any reasons for the dip in optimism. But higher interest rates are a likely factor — the Federal Reserve raised interest rates four times last year and a total of nine times since 2015. The Fed has indicated that it expects to keep rates stable in the near future as the economy is slowing. While that can keep borrowing costs stable, interest rate increases through last year have made it more expensive to finance purchases. And a weaker economy is likely to make some would-be buyers wary about acquiring a business.
But owners don't need to worry that they won't be able to sell their companies, although they may not get as high a price as they did in the past, Everett said.
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