Is it Becoming a Buyer’s Market?
At the beginning of 2020, amongst a strong Seller’s market, business advisors were optimistic it was going to be another outstanding year as the number of business transactions was at elevated levels. Due to the recent climate, it appears as though the once thriving Seller’s market is now turning into a Buyer’s market.
If there were any confidence concerns with business owners back then, it was due to political and economic uncertainty, fearing the election outcome, minimum wage increases, and a potential recession. Currently, however, consumer confidence has become extremely high, and some have even questioned if the stock market would ever see a Bear Market again.
Business advisors began preparing for a mass exodus of the small business entrepreneurs that made up 41 percent of all small businesses which were born between 1946 and 1964. These Baby Boomers were late in its arrival due to the 2008 financial crisis that resulted in the Great Recession. As we know, the Great Recession had a negative effect on business valuations.
We have since learned however, many Boomers choose to work longer than our previous generations, and they have been enjoying their profits and as a result, they were not ready to let go. Many felt confident that an extremely comfortable retirement would await them as they continued to build their “nest egg”, and decide on their terms when it was time to “sail into the sunset” and pass their legacy on to the next generation.
Recently, now I am beginning to see the Seller Tsunami as many business owners are not keen on going through another recession and are worried about the unknowns. Many realize the negative impact COVID has placed on their business’s valuation and much like their stock portfolios, they are concerned if they wait any longer, their net worth could shrink further. A rare exception is the business owner that owns an essential business that is performing better than its pre-COVID levels. After speaking with lenders this week, it is apparent we are quickly entering a Buyer’s market.
There are many qualified buyers with good credit, that have been sitting on the sideline working in Corporate America while accumulating a nice net worth, and have plenty of cash on hand for a business acquisition. These Buyers realize the economy will get back on its feet, and that there are successful businesses hitting the market from our exhausted Boomers that are ready for their next chapter in life.
They also understand they may be able to buy a business at a lower multiple, and with better terms than last year. Couple this with the fact that interest rates are at historic lows, provides skeptical buyers with the nudge they needed to become entrepreneurs. Existing business owners, that have been looking to scale through acquisition are finding this time is the opportunity they have been waiting for and are beginning to act in this current climate.
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