3 Factors that Will Increase SMB Transactions in 2018

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The sale of small and medium sized businesses (SMBs) last year is causing quite a stir in the private equity space. Inc. recently cited a 26% increase in the number of businesses sold during 2017 compared to the previous year. While these growth metrics are record-breaking, it looks like 2018 will break this record with even higher levels of SMB transaction activity.  This is great news for business owners looking to unlock the wealth currently trapped in their business.

Here are three trends that will catalyze, potentially, the greatest year for SMB transactions yet:

1. Baby Boomers Retiring

The Small Business Administration reported that more than half of the 12 million privately held businesses in the U.S. are owned by Baby Boomers, with the average age being 50.3. Barbara Friedberg of Investopedia cites that Boomers “are heading to retirement in droves—about 10,000 a day.” It is estimated that 70 percent of Boomer owned businesses are expected to change ownership in the next 15 years. Healthier businesses are also encouraging higher valuations and better close rates.

Boomers will be looking to exit their business and now is the opportune time to do so.

2. 2018 Tax Reform

While the dust is still settling on what some call the largest tax cut in American history, we can see in the weekly announcements of pay increases and bonuses to employees from notable organizations—including Apple, Comcast, Disney, and Starbucks—and the increase of capital investment in U.S. that the economy is poised for a run in the next few years. 

SMBs will gain much from this boom in the economy, and with stronger financial stories to tell, will create attractive opportunities for buyers who are looking for growing businesses to purchase.

3. Private Equity Funds at All-Time High

Since the Great Recession, hordes of private and corporate cash have been sitting on the sidelines. Clearly, the stock market surge in 2017 evidences that cash is flowing back into investments now that there is a real return to consider. 

However, there are still large amounts of private capital that remain available for investment. Amy Whyte of Institutional Investor writes, “Investors have been shoveling increasing amounts of money into [this] asset class over the last three years, and dry powder — undeployed [sic.] committed capital — snowballed to $1 trillion-plus for the first time in December.” These funds are just waiting to be moved into attractive business sale opportunities.

 

The combination of these three factors has poised 2018 to be a year of the perfect storm for SMB transactions. The important thing to note as an SMB owner is that to benefit from this brewing storm, you must know the value of your business and engage the right partner in ensuring you get out of it what it is worth.

News and TrendsMatthew Pohl