By Steven G. Niehaus MBA, CBI, CM&AP, M&AMI
Market Pulse Q1 2024
The International Business Brokers Association and M&A Source recently published the Market Pulse Q1 2024 Survey Results. There are some interesting trends in businesses being sold in Main Street (values up to $2M) and the Lower Middle Market (values $2M - $50M).
Seller Sentiment
Although the seller confidence is higher than the 2020 period of Covid, sellers remain somewhat cautious due to economic uncertainty, higher interest rates, geo-political turmoil, and the upcoming U.S. elections. Business owners who are planning to retire or have other reasons to sell may need to reset expectations and/or consider more flexible deal structures with prospective buyers.
Acquisition Financing
While sellers prefer 100% cash at closing, the higher interest rates are impacting the amount of cash buyers are willing and/or able to provide at close. Buyers are asking sellers to provide a larger portion of the deal financing. This form of seller financing could be in the form of a traditional debt financing, earn-outs, retained equity, or another compensation structure.
On average, sellers can expect to receive about 80% of total purchase price as cash at close. Seller financing could be a win-win since it provides the buyer with lower interest rates than banks while providing the seller with additional return. The seller should ensure the conditions are satisfactory with regards to a fair interest rate, term of note, deferral period, and additional security provisions.
Earn-outs are an option in which the sellers may receive their desired valuation for the business, assuming the business continues to perform, and buyers are able to mitigate their risk. If the business is successful post-close, it’s a win-win for both parties.
Time to Close
For businesses that have sold, the average time to sell a Main Street business varied from 7 to 9 months, which has been consistent with past periods. Although borrowing costs have increased, the smaller size of Main Street businesses still has SBA funding options and perhaps motivated owners looking to retire. Most buyers in this segment are first time buyers, serial entrepreneurs, or existing companies looking to expand.
Businesses in the Lower Middle Market averaged 13 months to sell. The increased costs of capital and overall tighter lending conditions have obviously impacted these businesses in the $5M to $50M sector. The key buyers include private equity groups, strategic companies, or other investors.
Summary
There is still plenty of activity with business sellers and buyers; however, the market conditions may require adjustments and flexibility to create a mutually beneficial transaction. A Certified Business Intermediary or M&A Advisor to help guide you through the process. Please contact me if I can be of any assistance.
Steve Niehaus, MBA, CM&AP, CBI, M&AMI
[email protected]
239.565.3171
Source: Market Pulse Q1 2024 International Business Brokers Association and M&A Source
-
Tue, Jun 04, 2024Share Article
-
Market Pulse Q1 2024
