Since mid-2012, a steady increase in median revenue from $350,000 to $450,000, led to higher small business sale prices. Overall, this year’s small business transaction data is following the trend of the past few years: steady activity along with improving financials. Although total transactions are on pace to fall three percent from peak 2014 levels, BizBuySell expects to see 2016 levels near here. The average cash flow multiple in Q3 2015 dropped from 2.56 last year to 2.28, suggesting that we are in a buyers’ market.
The best risk/return value for private investors in growth companies is in basic materials, energy and information technology according to a survey done by Pepperdine University on private capital markets. This is a change from 2014’s leaders of healthcare, biotechnology and consumer goods. Quite the wholesale switch in industry segments. We doubt energy will be there in 2016.
Another interesting report from the Pepperdine study is that the angel industry is growing rapidly, whereas the private equity and venture capital players are stable. This should lead to more competition and better deal quality for Series A and B rounds, but also a declining percentage of candidates funded.
Our late-stage, privately held technology market appears to be in a bubble. This is being led by non-VC firms. Corporate investors including Google, Rakuten, Alibaba, Comcast and others have increased their investments in ventures. Corporate investors typically buy for strategic reasons paying more than a purely financial investor would pay. 78% of the $1B+ valuation rounds were led by non VCs. While many great companies are being created, fifty $1 billion valuations in the last 18 months compares to nineteen in the prior 18-month period. IPO markets offer us some indication too. In 2014 three out of twelve exits went out at a lower valuation than the previous round. In 2015, five out of seven IPOs were down rounds!