MBB From Brian

Market Summary WINTER 2015

January 14, 2015

Ladies and Gentlemen, start your engines: the economy is heating up!

 

We've seen a noticeable increase in buyer activity and deals going to closing over the last quarter and ongoing improvements in the economy bode well for 2015. Overall trends:

New buyer pool. Politics aside, the new health care exchanges seem to be addressing “job lock”. Entrepreneurs are more willing to leave their employment to pursue business acquisitions. We are seeing experienced individuals with managerial, IT or technical skills looking for opportunities and interest in self-employment.

Main St. Buyers. While we have already seen strong buyer activity from high net worth individuals, private equity companies and strategic buyers; “Main St. buyers” have re-entered the market after several years of tightened credit and lower net worth. We are seeing a resurgence in “Main St.” interest for businesses priced between $250k and $750k and EBITDA of $150k to $300k.

Maine:

Portland is undergoing a boom in hospitality and niche food manufacturing. Outside of Portland, within Southern Maine, we are seeing increased demand in “lifestyle” businesses from both retiring boomers and millennials. Coastal Maine has strong demand for performing business in the tourism industry and environmentally focused businesses. Central and Northern Maine are still suffering from low buyer demand, although Bangor is showing strong signs of business growth. Average time on market for Maine Business Broker’s clients is 11 months.

 

New Hampshire:

Light industrial and distribution businesses are drawing strong interest from strategic buyers. For “Main St.” businesses location is critical. Rockingham, Hillsborough and Merrimack country businesses are drawing the predominance of buyers and seeing the highest rate of successful transactions. The Lakes Region of NH is seeing an uptick in inquires from second home owners looking for a “lifestyle” purchase of a local businesses. Established seasonal businesses allow “snow birds” to head south for the off-season. Overall, the sales curve is shortening with the average time on the market between 12 to 18 months.

 

E-Commerce:

There is strong and growing demand for web-based and e-commerce businesses. Buyers are looking for proven concepts with at least 2 years of earnings. The more “virtual” the business, the more appealing. Businesses with recurring revenue models, multiple sales channels, focused SEO strategies and third party fulfillment are seen as a plus.

 

Is it a Buyer or Seller Market?

We’ve seen a market slightly biased towards Sellers for the last 6 quarters. This has not resulted in valuation pressures—multiples/CAP rates have been reasonable and still based on historic EBITDA. We now feel that we are moving into a strong Seller market and valuations will start becoming more aggressive. This should result in multiples at the higher end of the scale, less seller financing and shorter earn-out periods. In drafting LOI’s, buyers should expect non-refundable deposits, shorter “Exclusivity clauses” and more push back to limit durations and damages in the Reps & Warranties.

 

Our recommendation:

If you are Buyer now is a good time to acquire a business for a fair price and at an early stage of an economic upswing. If you are a Seller, keep in mind that it can take 12-24 months to sell your business. Prepping or listing your business now may help you realize top value. Waiting for market peak could result in “mistiming” and your business being marketed on a down cycle.

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