Slow But Continued Growth

The summer months have always been somewhat slow in the business brokerage industry. Buyers and sellers prefer the “cool” environment of the beach and parks over the “hot“ transfer of businesses.

“We  have had a significant number of business valuations performed in the second quarter and the beginning of the third quarter, preparing those businesses for market entrance,” says Achim Neumann, President, A Neumann & Associates, New Jersey. “As of today, we have more than 25 businesses undergoing valuations, with many of them targeted to enter the market by mid-September.”

“Indeed, we might finally get to a point where we can start meeting the overwhelming number of inquiries we’ve received from potential buyers,” observed Gary Herviou, Director Marketing, Central New Jersey. “This high demand has been a trend in all of our New Jersey, New York and Pennsylvania offices for some time now.”

The shift in activity could predict a ripple of relief for business buyers that could start a larger wave.  However, a recent article in The Wall Street Journal, July 17, 2012, titled ‘Fewer Small Firms Changing Hands’ references the lack of activity surrounding businesses selling for $150,000 or less.

“Quite frankly, our firm primarily does transactions exceeding one to two million dollars in transaction value,” notes Mike Gersten, Director Marketing, North New Jersey-Southern New York.  “So our transaction volume really does not confirm the premise of the article. Our number of transactions continues to be constrained by too few businesses for sale.”

According to most analysts, since the sharp economic downturn in 2008, the ratio of business buyers to sellers continues to remain unbalanced in the middle market space, often in excess of a 3 to 1 ratio. One explanation is that more buyers have entered the market since then due to lack of alternative investment opportunities. As evidence of this, A Neumann & Associates currently has three deals pending, with multiple buyers and investors reviewing each deal.

“Additionally, we have seen an increasing number of owners willing to extend financing to qualified buyers, combined with available acquisition funding we can provide through numerous banks,” says Neumann. “Taking this into account, and with valuations remaining a leading indicator for us, we could see a very strong fourth quarter in 2012 and early  2013.”