By Kathryn Guthrie
Every quarter, International Business Brokers Association (IBBA) and M&A Source, the premier trade organizations for Business Brokers and Mergers and Acquisitions professionals, conducts a survey of intermediaries nationwide about what they are seeing in the market.
The market segments they study are Main Street and Lower Middle Market. For the purpose of the survey, Main Street is defined as businesses with less than $2 million in top line revenue and Lower Middle Market encompasses businesses that range from $2 million to $50 million in top line revenue.
According to the Q2 2022 survey, there are several challenges to closing deals in both the Main Street and Lower Middle Markets. The largest impact is being felt in businesses impacted by the labor market. 68% of advisors believe labor shortages and high turnover of employees had a negative impact on their ability to sell businesses and 5% of those had deals that were terminated after going into contract due to labor issues.
Supply chain issues have impacted more than half of the advisors surveyed. While slowly stabilizing, the fallout from the COVID-19 shut down and subsequent instability of materials is still impacting businesses and business sale transactions. Other issues impacting the supply chain include monetary policy and international unrest with countries supplying raw materials and finished products. These challenges are predicted to impact the desirability of businesses that rely on a steady supply of those goods through 2022.
Rising interest rates, while alarming in the news, are still relatively low. There will be some impact to business sales if rates continue to rise, but for the moment the increases do not seem to be a major hinderance to transactions.
Even with all the uncertainty business valuations have held relatively steady in the Main Street market with multiples holding at their historic averages of 2.0-2.8. Median multiples increase with company size. The most probable selling price of any specific business will be affected by a number of value drivers that impact the risk profile and desirability of the business to an investor (which is ultimately what the multiple represents). To determine the value of your business in the current marketplace. This is best done with the assistance of a business intermediary or other valuation specialist.
Nationally we are currently experiencing a seller’s market which means the demand for quality established businesses is higher than the supply. This is driving private equity and other investor class buyers into the upper Main Street market for add-on acquisitions for their existing industry platforms. This does not mean (generally) they will overpay for an opportunity. Business acquisition is after all an investment that must make financial and strategic sense. It does mean buyers need to be ready to act decisively and have their advisor team in place if they want to be successful.
You can find attractive businesses in any industry, but the hot sellers right now are in personal services, construction/engineering and manufacturing.
About Liberty: The Liberty Group of Nevada is a business brokerage specializing in the transition of ownership for small businesses. Headquartered in Reno, Nevada, the Liberty Group and has served the Northern Nevada business community for more than 16 years. They expanded with offices in Rocklin, CA in 2021.
Liberty Group of Nevada operates on the principle that a fair evaluation, full disclosure of all material facts, and professional handling of all matters through the close of escrow are key to successfully buying or selling a business.
They provide a valuable resource for entrepreneurs seeking to sell or acquire private companies in the Main Street and Lower Middle Market segment. Their client companies represent a diverse selection of acquisition opportunities from a broad range of industries. With over 350 successfully closed transactions, the Liberty Group of Nevada is able to provide our buying and selling clients with unparalleled service.
About IBBA: The International Business Brokers Association believes in helping clients find a broker to guide them through the process of buying/selling a new business. They want to help business brokers sustain and grow healthy economies by providing training and support. The IBBA believes if their members successfully achieve their goals then the IBBA will also be successful.
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