Market Overview

Survey Finds Trade Wars Do Not Rattle Business Owner Confidence

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Rising Interest Rates Have a Negative Impact on Both Buyers and
Sellers

Business brokers continue to be bullish on a strong M&A market for 2018.
Optimism persists despite economic and political uncertainty about U.S.
tariffs according to the Q1 2018 Market
Pulse Report
published by the International
Business Brokers Association
(IBBA), M&A
Source
and the Pepperdine
Private Capital Market Project
. On May 1, 2018 President Trump
delayed steel
and aluminum tariffs
for key allies including the European Union,
Canada, and Mexico. In spite of the uncertainty over a future trade war,
the majority of advisors surveyed said that tariffs will not impact the
sale of business for both buyers (56 percent) and sellers (60 percent).
In fact, 86 percent of advisors said business owner confidence is better
than a year ago.

"The industry as a whole is keeping a close eye on the tariff situation,
but right now we do not see the trade wars impacting buyer confidence,"
said Mike Camerota, JD, M&AMI, CM&AP, Founder of Touchstone Advisors,
M&A Source Chair. "We expect better clarity on how they will impact M&A
as buyers and sellers reconcile tariffs with business costs. Many
businesses are taking a ‘wait and see' approach as current economic
growth could make an increase in raw material pricing more tolerable."

On the other hand, rising interest rates are viewed as problematic with
advisors predicting a negative impact on sellers (43 percent) and buyers
(68 percent). Rising interest rates may spur activity in the short term
as buyers are motivated to take on debt before financing becomes more
expensive. As interest rates move up, purchase prices may be subdued,
despite an otherwise strong market.

"With interest rate increases looming, buyers and sellers were motivated
to accelerate the deal making process early this year. We may continue
to see abbreviated timeframes in order to get ahead of additional
increases," said Craig Everett, PhD, Director of the Pepperdine Private
Capital Markets Project. "At the same time, a strong seller's sentiment
in the lower middle market gives business owners and advisors the
leverage they need to set timetables and keep the deal process moving
forward."

Consistent with general market optimism, seller market sentiment is at
an all-time high in four of five market sectors. Business in the $1MM to
$2MM sector had the biggest jump in confidence, growing 14 percentage
points. Despite the seller market advantage, the majority of Main Street
business owners fail to plan for the sale of their business. Advisors
indicated that half of businesses that went to market in the last
quarter did not sell and that 88 percent of business owners in the
<$500,000 sector did not have a formal exit strategy.

About the Market Pulse Report

The Market Pulse Report compares conditions for businesses being sold on
Main Street (values of $0-$2MM) to those being sold in the Lower Middle
Market (values of $2MM-$50MM). The Q1 2018 survey was completed by 271
business brokers and M&A advisors.

About International Business Brokers Association (IBBA) and the M&A
Source

Founded in 1983, IBBA is the largest non-profit association specifically
formed to meet the needs of people and firms engaged in various aspects
of business brokerage and mergers and acquisitions. The IBBA is a trade
association of business brokers providing education, conferences,
professional designations and networking opportunities. For more
information about IBBA, visit the website at www.ibba.org
or follow the IBBA on Facebook,
Twitter
and LinkedIn.

Founded in 1991, the M&A Source promotes professional development of
merger and acquisition professionals so that they may better serve their
clients' needs and maximize public awareness of professional
intermediary services available for middle market merger and acquisition
transactions. For more information about the M&A Source visit www.masource.org,
or follow the M&A Source on Facebook,
LinkedIn
and Twitter.

About Pepperdine University Graziadio Business School

Anchored in the core values of integrity and innovation, the Pepperdine
Graziadio Business School
challenges individuals to think boldly and
drive meaningful change that positively impacts their organizations and
communities. With an entrepreneurial spirit, the Graziadio School
advances experiential learning in small classes that deepen connections
and stimulate critical thinking. Through our wide continuum of MBA, MS
and executive degree programs offered across six California campuses,
Graziadio faculty inspire full-time students and working professionals
to realize their greatest potential as values-centered, Best for the
World Leaders. Follow Pepperdine Graziadio on Facebook,
Twitter,
Instagram
and LinkedIn.

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