Multiple Forces Driving Increase in Small Business Acquisitions

Small business acquisitions have seen a significant increase over the past quarter. Online business acquisition matchmaker BizBuySell reported a 43.4 percent spike in sales during the last three weeks of 2012, compared to the same three weeks of 2011.

Curtis Kroeker, BizBuySell’s general manager, says “We had a daily average of 12.7 deals for the first 10 weeks of the fourth quarter. It spiked to 16.3 over the last three weeks, showing a very pronounced, consistent increase.”

According to global merger and acquisition tracker Mergermarket, $672.9 billion worth of deals were done during the fourth quarter in the U.S. This was a 45.6 percent hike over 2011′s fourth quarter. “We’re not going back to 2007,” says Mergermarket’s Amanda Levin, “but it’s a lot better than recently.”

A number of different factors are being identified as causes of the recent spike in small business acquisitions. One was the common desire to liquidate before the tax increases associated with the recently struck “fiscal cliff” deal took effect. Silicon Valley entrepreneur Eric Bahn sold his social network company just before the end of 2012, but notices that “Some others in the Valley are wallowing a bit in their alcoholic beverages right now, feeling like they missed a good time for liquidity.”

Other driving factors of the acquisition spike were baby boomers looking to sell in anticipation of retirement, and laid-off middle-aged workers willing to try entrepreneurship instead of job hunting. Many larger companies have also stockpiled considerable amounts of cash since the financial collapse, and are in the market to acquire smaller competitors.

Finally, the shortage of seasoned employees in some sectors has motivated the acquisition of small businesses by larger ones in need of skilled labor. Roger J. Murphy, president and chief executive of business brokerage Murphy Business & Financial, says “In Florida about 90 percent of all the construction-related workers were out of work because of the industry decline. The guys working down here relocated out of state or got retrained. Now, if you’re doing a building and you need a sheetrock contractor, you just can’t find the labor.”

Diane Biersteker, a human resources consultant from Little Suamico, Wisconsin, has noticed the same pattern as Murphy. “The craftsman is incredibly important,” she says, “and it’s a big pain point for the machine shops and manufacturers I consult with.”

Source:

Klein, Karen E. “What’s Driving the Spike in Small Business Acquisitions.” Bloomberg Businessweek, 1/28/13.

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