Business owners are burned out, worn out, and getting out. More than 1 in 4 business owners who put their business on the market this spring did so because of burnout. That’s according to a first quarter survey of business brokers and M&A advisors conducted by IBBA and M&A Source.
Retirement still leads as the number one reason sellers go to market. That hasn’t changed in the Market Pulse survey’s nine year history. But this time we saw a real jump in burnout as the reason business owners are selling.
Even more concerning, 15% of sellers had some kind of health issue driving them to market. That’s also higher than previous surveys and suggests the pandemic has taken a heavy toll on business owners.
Business owners already deal with a lot of stress and pressure. Getting qualified employees has been a constant challenge – and we’ve been hearing about that for a couple of years already.
For many, the pandemic was the straw that broke the camel’s back. And we’re not just talking about businesses that had financial struggles. Even those businesses that stayed operational through the pandemic still had worries over employee safety, PPP versus unemployment, and retaining their talent.
It’s not that big of a surprise that business owners are saying, “Enough is enough.”
In addition, to burnout and health reasons, 7% of sellers went to market to get ahead of potential increases in capital gains tax. The Biden administration has indicated it will ask for significant increases in the capital gains tax rate in the near future.
If Biden’s tax plans come to fruition, the capital gains tax rate could effectively double, from 20% to 39.6% for income exceeding $1 million. Right now, that means business owners need to shift their focus from maximizing total transaction price to maximizing after-tax proceeds.
Even if a business owner is projecting 5% annual growth, they’d have to run their business another five years just to net out the same amount they could today after increased capital gains.
Business brokers and M&A advisors say they’re already seeing an uptick in activity with 41% reporting stronger deal flow over a year ago. They predict M&A will continue to pick up through the rest of the year.
Without some big resurgence in COVID, the market is going to finish out hot by year end. Right now we have double the deal flow we typically do, and our peers across the country are reporting the same thing. Everyone is busy.
Sellers are coming back to market, but the buyers never left. Sellers with COVID-proof, or at least COVID-resistant, businesses are seeing competitive bids and getting strong values.
Al Statz is President and founder of Exit Strategies Group, a leading California-based M&A advisory firm with decades of experience selling manufacturing, distribution and service companies in the lower middle market. For further information, or to discuss a potential sale or acquisition, confidentially, contact Al Statz at 707-781-8580.