The Buy Sell Edge M&A Market Analysis Q3 2022

Midterm elections, high inflation, fed funds rate continue to increase, and global headwinds are strengthening, pushing us into a contraction.  Just when business owners thought they were going to see a normal year again, global forces put us on continued high alert.

Since Covid, it seems we have faced a neverending set of crises.  Covid, stock market crash, political unrest, social unrest, supply chain issues, global chip shortage, stock market resurgence, covid again, mass shootings, alien invasions, election protests, attempted coup, covid some more, not enough workers, invasion of Ukraine, inflation, interest rates, real estate downturn, midterm elections continued, and now the looming recession.  Sounds fun? Well, for a growing amount of baby boomer business owners, signs are showing they are getting tired and ready to hit the exit.

Let's get to the data.  Figure 1 is a breakdown of the company sizes we will analyze throughout this article.

MACROECONOMIC CONDITIONS

The economy is facing major headwinds.  Major economic players such as Jamie Dimon, Larry Summers, Jeff Bezos, Elon Musk, Mark Zuckerburg and even Cardi B have all warned of the looming recession and are actively taking measures to prepare.

One shining light is that we continue to beat expectations on the job front.  Unemployment continues to remain low and the country continues to beat expectations on new jobs.

EXPERT & PUNDIT SENTIMENT

In the quarterly report conducted by the IBBA and M&A Source, 500 M&A advisors and business brokers were surveyed about their sentiments about the economy and their current deals/pipeline.  The overall sentiment is that valuations are headed toward a downtick.

BUSINESS VALUE TRENDS

Lower middle market companies have seen valuations fall while main street and small businesses have remained steady.

The average sale price realized compared to the asking price has remained steady with a slight downtick.  It will be interesting to see what the economy does to the asks vs offers in 2023.

DEAL TERM TRENDS

Cap tables and finance structures have remained relatively consistent year over year.  The current market conditions would suggest bank financing decreasing, seller financing increasing and earnouts getting more creative.

TIMING

Months to close are generally on a downtick as sellers show continued motivation to sell.  

Buyer TRENDS

The trend of first-time buyers and those buying a job have continued to show slight increases since the pandemic.

Construction, engineering, and manufacturing continue to lead the way in deals for small, medium, and lower-middle-market companies.

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EXIT PLANNING

The smaller the business, the less likely to plan ahead when it comes to selling their company.  Small business owners have fewer resources available to prepare, which put them at a disadvantage when selling.

Whether or not you think a recession is coming, it is wise at this point to at least prepare for the possibility. 

If you own a business and you want to start preparing for your exit, please contact me for a free valuation and consultation on preparing your company for sale.

ABOUT THE Q3 2022 MARKETPULSE INTERNATIONAL BUSINESS BROKERS ASSOCIATION AND M&A SOURCE SURVEY REPORT

Some of the data analyzed was taken from the quarterly IBBA and M&A Source MarketPulse Survey was created to gain an accurate understanding of the market conditions for businesses being sold in Main Street (values $0-$2MM) and the lower middle market (values $2MM -$50MM). The national survey was conducted with the intent of providing a valuable resource to business owners and their advisors. The IBBA and M&A Source present the Market Pulse Survey.  The Q3 2022 survey was conducted October 1-15, 2022 and was completed by 499 business brokers and M&A advisors. Respondents completed 452 transactions this quarter. This is the 42nd edition.