The Condition of the Private Business-for-Sale Marketplace

The William Bruce Report: The Condition 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 the small to medium size business-for-sale marketplace is comprised of non-public, closely held 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.

The fourth quarter 2022 survey was conducted January 1-15, 2023, and was completed by 493 business brokers and M&A advisors. Respondents reported 392 transactions completed in the 4th quarter.

Business Valuations

Valuation multiples remained relatively consistent across market sectors, with one notable exception. Advisors reported that businesses with an enterprise value of $5 million to $50 million received an average valuation of 4.1x EBITDA, a notable drop over the past few years.

Businesses with selling prices below $2 million are shown with a multiple of SDE (Seller’s Discretionary Earnings). Above $2 million in selling price, businesses are shown with a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).

Business Acquisition Financing

Business acquisition financing has not changed significantly since the pandemic. On average, sellers receive 80% or more of the total consideration as cash at closing. Seller financing accounts for 14% or less of most sales.

Types of Buyers

Individual buyers dominated the Main Street market of businesses with values up to $2 million in 2022. Calculating survey responses for all of 2022, we see that first-time buyers made 39% of Main Street acquisitions followed by serial entrepreneurs (buyers who’d owned a business before) at 36%. This is a relatively steady trend.

Individual buyers also made their mark in the lower middle market defined as businesses selling above $2 million. Individuals accounted for 35% of acquisitions (18% first time buyer, 17% serial entrepreneurs). But once again, private equity groups made up about a quarter of the acquisitions in this market.

Most Popular Categories of Businesses Being Sold

Reviewing data for the whole year, most Main Street transactions (up to $2 million in value) occurred in the following industries: Restaurants (18%), personal services (17%), business services (13%), and consumer goods/retail (13%).

As shown below, in the lower middle market with selling prices above $2 million, most transactions occurred in these industries: Construction/engineering (21 %), manufacturing (16%), personal services (10%), and consumer goods (10%).

Why Sales Don’t Close

Survey respondents gave a number of reasons why sales failed to close. Overall, 23% of advisors cited ‘unrealistic seller value expectation’ as the top reason transactions fall apart. Economic uncertainty and poor financials were other leading factors.

Notably, while ‘unrealistic seller expectations’ was the leading issue overall, it wasn’t always the leading reason by size. For the smallest Main Street businesses, for example, ‘poor financials’ was the number one reason advisors gave for failure. Likewise, financing (the ability to find a lender to finance the sale) was also a key problem for Main Street transactions.

Time to Close the Transaction

The average time to sell a small business stayed relatively consistent in the fourth quarter of 2022, varying from six to 10 months. Of that time, roughly 90 days were spent in due diligence, after a signed letter of intent or offer.

Can Professional Advisors Help?

A previous survey done by Business Brokerage Press showed that only 25 to 30 percent of businesses on the market sell to new ownership. But respondents to this Market Pulse survey reported closing ratios averaging about 50%. This indicates that full-time professionals in the private business-for-sale marketplace who are accredited advisors are likely to achieve results above the market average.

In Summary

We’re in unusual times. Even though some signs may be pointing to a recession, there’s a huge amount of capital ready to be deployed from both corporate and private equity buyers, and valuation multiples are holding steady except for the top segment in business size with values ranging up to $50 million.

Overall, the pool of buyers remains strong.

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

For further reading, here are additional articles on the issues of business valuation and ownership transfer:

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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.