Archive for April, 2018
Apr
5
by Chia-Li Chien, PhD candidate, CFP®, PMP® Apr. 5, 2018
The wave of baby boomers exiting their businesses can put a lot of pressure on basic supply and demand. A recent study found that “1.36 to 2 million baby boomer–owned businesses would be for sale” from 2012 to 2022 (Bronza, Auslander, & Ma, 2015), but the number could grow substantially to 3.8 million by 2032 (McMann, 2012). The “large supply on the market will [put] downward pressure on pricing” (McMann, 2012). The supply and demand condition in the merger and acquisition market can cause the selling cycle of a business to be unpredictable.
A business owner wants to be in a seller’s market to avoid pricing pressure from market transactions. A seller’s market is “a situation in which demand exceeds supply and owners have an advantage over buyers in price negotiations” (Investopedia, 2018). Figure 1 illustrates how a seller’s market is often clustered in the larger deal size (selling price) such as above $1 million. Selling prices that are less than $500,000 often occur in a buyer’s market. However in 2018, selling prices between $500,000 and $1 million constitute a seller’s market compared to the 2017 buyer’s market. Hence, smaller selling-price firms have a lot more pressure on their desirable selling price.