The No. 1 Reason People Sell a Business
Business owners may have any number of reasons for starting a business, but new research has found that there three main reasons owners sell their businesses. That research found that owners whose businesses were worth more than $5 million sold their businesses to avoid tax changes, to retire, to avoid burnout and to pursue new opportunities.
One group in particular is driving the sales of many of these businesses, the researchers found.
"Baby boomers represent more than half of the business owners in the U.S. and many are selling their businesses in order to have a comfortable retirement," said Chet Walden, president of M&A Source, which conducted the research. "Businesses over $5 million in value had more money to lose and were more keenly aware of the large potential tax increases coming in 2013. They decided to sell in 2012 in hopes of netting out more than they could after the new taxes take effect."
Although many business owners were looking to sell their businesses in order to prepare for retirement, many other business owners may not be rushing into sales before the economic situation clears up. In fact, 57 percent of respondents say they expect fewer sales before there is economic clarity. However, 26 percent say more sellers may try to close a deal before new taxes take effect.
"For those businesses waiting to sell, I think it’s safe to assume that many are waiting to move 2009 off their three-year-trailing financial reports," said John Paglia, director of the Pepperdine Private Capital Markets Project and associate professor of finance at Pepperdine University’s Graziadio School of Business and Management. "Most sellers had a poor financial performance in 2009, and moving past that may make their businesses more sellable. They’re hopeful that better numbers will net them a little better value — even with the tax implications in consideration."
A majority of those buying businesses, 75 percent, were individual buyers and 60 percent of those individuals were first-time buyers. The researchers found that brokers were more likely to call the current economic situation a seller's market, compared to the previous quarter.
"The shift from a buyer’s market to a seller's market reflects the number of buyers coming into the marketplace," said Scott Bushkie, marketing chair for International Business Brokers Association (IBBA). "Economic uncertainty and the looming fiscal cliff may have resulted in fewer sellers, giving the upper hand to the business owners that are looking to sell their companies now. It is Econ 101: more buyers (with unprecedented amounts of cash) than sellers, sellers have the advantage."
The research was a collaboration between the IBBA, M&A Source and Pepperdine University's Graziadio School of Business and Management.