Activity in the business-for-sale marketplace is brisk and values are strong.
The Market Pulse Survey is done quarterly by the International Business Brokers Association and M&A Source. The purpose of the survey is to gain an accurate understanding of the market conditions for businesses being sold in Main Street (values to $2 million) and the lower middle market (values from $2 million to $50 million).
The fourth quarter 2021 survey was conducted January 1-15. Activity for the fourth quarter continued at an intense pace as advisors reported an uptick in both incoming engagements and completed transactions. More advisors characterized this as a seller’s market than nearly any other time in the survey’s 10-year history.
A number of economic factors are driving M&A. High levels of dry powder, the availability of debt, and the favorable cost of debt are key factors contributing to market momentum. The competitive labor market may also be playing a role. When organizations can’t find the talent they need to staff expansion plans, acquisition presents an alternate strategy to grow.
On average, business valuations have held relatively steady in the Main Street market, varying from 2.0 to 3.3 times the seller’s discretionary earnings. These multiples
have remained fairly consistent over the history of the survey.
Shifts are more likely in the lower middle market, however, as businesses become more attractive targets to financial and strategic buyers alike. Businesses with values of $5 million to $50 million earned an average multiple of 6.0x EBITDA, a survey peak.
First-time buyers dominated the Main Street market, followed by serial entrepreneurs and existing companies. In the Main Street market, individuals made up 74% of business buyers.
In the lower middle market, 40% of buyers were existing companies. That makes
sense as balance sheets are strong, and the lending environment is still conducive
to acquisitions.
In summary, it is definitely a seller’s market and all signs point to this situation continuing for the remainder of 2022.
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