The quarterly IBBA and M&A Source Market Pulse Survey Report was recently released and shows some interesting facts/trends regarding market conditions for businesses being sold in Main Street (values $0-$2MM) and the lower middle market (values $2MM -$50MM). Highlights of the Survey include…
Advisors continue to be bullish on a strong M&A market for 2018. In the Main Street and lower middle markets, 86% of advisors said business owner confidence was as good (25%) or better (61%) than a year ago. Optimism persists despite economic and political concerns around tariffs and interest rates. The majority of advisors believe that tariffs will have no impact on buyers (56%) and sellers (60%). Meanwhile, rising interest rates are viewed as relatively problematic, with advisors predicting a negative impact on sellers (43%) and buyers (68%).
In Q1, final sale prices came in anywhere from 89% to 100% of the pre-set asking price or internal benchmark. Lower middle market companies in the $2 million to $50 million range achieved the highest values at 100% of benchmark. Multiples continue to remain strong in all categories, with two sectors at or above peak. The largest market sector reached a median multiple of 6.1, a 0.3 increase above the previous sector peak of 5.8 seen in Q3 2016. This is a 35% increase over the Q1 2014 multiple, when the markets were still recovering from the recession.
The average time to close is 8.7 months.
Sellers are getting even more cash at close this quarter, matched with declining seller financing.
Retirement continues to lead as the number one reason to sell across most sectors, followed by burnout.
The majority of Main Street business owners fail to plan for the sale of their business. Advisors indicated that 88% of business owners in the <$500,000 sector conducted no formal planning prior to engagement. Lower middle market business owners were more proactive, although roughly 45% also failed to make advance plans to sell. Even among business owners who do plan (Figure 11), only a few are working with any kind of professional advisor (e.g. CPA, wealth, attorney, broker) to discuss exit strategies a year or more in advance.
Looking at the overall market, manufacturing, business services, and personal services led among hot industries.
The Market Pulse Survey is presented by the IBBA (International Business Brokers Association), the M&A Source, and the Pepperdine Graziadio Business School .The IBBA is the world’s largest professional community of business intermediary specialists. The M&A Source is so named because it represents “the source” of opportunity and professional growth for merger and acquisition intermediaries and strategic professionals who are dedicated to the lower middle market (LMM).