Small Business Acquisitions: Feeding Frenzy Slowing Down?

Here's some potential good news for I.T. entrepreneurs looking to eventually sell their small businesses. It looks like merger and acquisition activity has remained strong through Q3 2014 -- rising about 18 percent from Q3 2013. But is the M&A market topping out -- especially amid concerns that the bull run on Wall Street might be coming to a close?

 First, a look at the numbers from BizBuySell:

  • Roughly 1,987 small businesses were sold in Q3 2014, up 17.9 percent from Q3 2013.
  • But that Q3 2014 figure is down 2.1 percent from Q2 2014, which generated a record 2,029 small business sales.
  • For Q3 2014, 35 percent of the deals involved services companies (though not necessarily IT services). The rest involved restaurants, retailers, and manufacturers (among others).
  • The median sale price was $189,000 in Q3 2014, up 5 percent from $180,000 in Q3 2013.
  • Sellers are growing more confident that they'll receive an acceptable bid for their companies.

Admittedly, BizBuySell is market agnostic -- so I don't have a breakout of tech-specific M&A deals. But a quick scan of the numbers provides a reality check for I.T. entrepreneurs that are dealing with small business owners.

For instance, success to many of your SMB customers involves building a business that's worth about $200,000. That figure certainly is not a life changing windfall. But if gives you a feel for the SMB entrepreneur's mindset as he or she deals with pricing issues and IT buying cycles.

Also keep in mind: M&A valuations tend to rise and fall based on two factors -- a company's overall financial performance (particularly revenue and profit growth rates) combined with the overall mood on Wall Street. And right now, the Wall Street mood is mixed at best. Skeptics think the bull run is coming to an end amid financial question marks in Europe, geopolitical issues with Russia, and the ISIS threat spreading across the Middle East. 

Could those variables really impact the value of a small business on Main Street U.S.A.? Absolutely yes.

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