The William Bruce Report: A Quarterly Summary of the Private Business-for-Sale Marketplace

The William Bruce Report: A Quarterly Summary of the Private Business-for-Sale Marketplace is a disclosure of the condition of the national market from insiders who are professional advisors to business buyers and sellers.

Because this private business-for-sale marketplace is comprised of non-public, closely held, small to medium size businesses with little public reporting required, information is often difficult to obtain.

One of the most authoritative sources of information for this private business-for-sale marketplace is the Market Pulse Survey conducted jointly by the International Business Brokers Association and the M&A Source.  The membership of both organizations is comprised of full-time professionals in the private business-for-sale marketplace who are daily assisting business buyers and sellers with issues of valuation and ownership transfer.  The survey was conducted July 1-17, 2022.

In General

Among respondents in this survey for the second quarter of 2022, the most frequently mentioned marketplace negatives were the shortage and the rising cost of labor, inflation, interest rate hikes, and supply chain issues.

“On the one hand, labor shortages are helping drive acquisitions right now,” said Lisa Riley, President of Delta Business Advisors, LLC in Scottsdale, Arizona.  “Companies are looking to buy skills rather than build them.  However, sellers know that talent shortages have constrained their growth. They’re paying more to keep their people, they’re having to turn away work, and they can’t expand like they wanted.”

Despite concerns over market headwinds, most advisors who participated in the survey report experiencing a strong influx of new engagements. Roughly two-thirds say they’re seeing more Baby Boomer business owners trying to exit before the next downturn or macro event.  And more than 54 percent of advisors said their number of clients “greatly increased” in the second quarter of 2022.

Valuation

On average, business valuations held steady in the market for smaller businesses.  Shifts were reported in the larger transactions where buyers tend to be financial and strategic buyers as opposed to individuals who are buying the smaller businesses.

The chart below shows the average valuation multiples for five size brackets over the last nine years.

In the above chart, the valuation metric for businesses selling below $2 million is expressed as a multiple of Sellers’s Discretionary Earnings (SDE).  Above $2 million, the quoted multiple is applied to Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA).  For an explanation of the differences between these two multiples, please see this article.

Time to Close

The average time to sell a small business has shrunk, varying by the size of the business, to a range of 6.5 to 8 months.  Of that time, roughly 60 to 120 days are spent in due diligence and execution, after a signed letter of intent or offer.

“Due diligence periods aren’t shifting, and yet businesses are selling faster. That’s a sign of market competition,” said Randy Bring, Senior Associate/Partner of Transworld Business Advisors of Boca Raton, Florida. “Seller teams can set out tighter timeline expectations and buyers respond. They know what it takes to win in today’s marketplace. If you’re looking to buy, have your deal team ready and your plans in place.”

Cash at closing as a percentage of the total consideration was reported at an average of 83 percent, indicating a healthy market.

Types of Buyers

The types of buyers in the private business-for-sale marketplace vary by the size of the businesses.  For businesses with valuations under $1 million, the buyers were predominantly individuals who were essentially “buying a job.”  Many were first-time business buyers and most were residents living within 50 miles of the business.

Above $1 million in value, the buyers tended to be financial or strategic buyers with Private Equity Groups and other large investors being active participants in this market segment.  The location of the buyers in proximity to the company is of less importance in this portion of the market, as these kinds of buyers will customarily send in a management team.

Most Popular Business Categories Being Sold

In the smaller business market, sometimes referred to as the Main Street market, business services appeared in the top three industries across each of the smallest valuation size brackets.  In the market for larger businesses, construction/engineering, manufacturing, and personal services dominated industry transitions per the chart below.

In Summary

It seems that despite the somewhat troubling macro-economic indicators, the private business-for-sale marketplace currently remains stronger than expected as indicated by this most recent survey from professional market advisors.

Disclaimer: William Bruce is a member of both the International Business Brokers Association and the M&A Source.  He participated in this survey.

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William Bruce is an Accredited Business Intermediary (ABI) and Senior Valuation Analyst (SVA) assisting buyers and sellers of privately held businesses in the transfer of ownership.  He currently serves as president of the American Business Brokers Association.  His practice includes consulting services nationally on issues of business valuation and transfer.   With offices in Fairhope, Alabama and Baton Rouge, Louisiana, he may be reached at (251) 990-5934 (Fairhope), 225-465-5799 (Baton Rouge) or by email at Will@WilliamBruce.org. 

About William Bruce

President, American Business Brokers Association / Business Broker and Accredited Business Intermediary assisting business buyers and sellers with the transfer of ownership since 1986 / Author: How to Buy a Business.
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