What is a Seller's Market
A seller's market is a market condition characterized by a shortage of goods available for sale, resulting in pricing power for the seller. A seller's market is a term commonly applied to the property market when low supply meets high demand.
BREAKING DOWN Seller's Market
A seller's market comes into formation when demand exceeds supply for a product or service. A "seller's market" is often heard in real estate to describe a shortage of properties in the face of healthy demand. The seller of a house in a town with a good school system and limited inventory would have firm control over setting the house price. Her house could invite multiple bids and it would not be unusual for bids to exceed the seller's asking price. A buyer's market is the opposite situation, where supply exceeds the demand and therefore the power resides with the buyer in terms of setting a price.
Seller's Market in M&A
Certain conditions create a seller's market in the corporate landscape. Again, excess demand for an asset that is limited in supply will shift the balance of power to the seller's side in pricing. Demand is stimulated and bolstered by a positive economic environment, low or modest interest rates, high cash balances, and strong earnings, and other reasons. When executives of a company are confident about its future prospects, they are more willing to pay larger premiums for assets that have scarcity value. These target companies may have superior brand equity, an innovative or leading technology, a dominant market share in a product area or geography, or an efficient distribution network that is difficult to replicate. Whatever the reason for its relative scarcity, the company, if it decides to put itself up for sale, would likely receive a bid or multiple bids (price war) that the Board of Directors and shareholders would find attractive.