High demand and low supply are creating seller leverage, stronger valuations, and advantageous deal structures with more cash at close.
By Dave Driscoll
Clients always ask: “Is this a good time to sell?” My reply today is YES!
I know…you hear that from everyone in the M&A industry that wants to sell your business. I can’t argue with that strategy because if an M&A firm does not have quality listings for sale, they have no closings, and no closings means no revenue.
So, when I state that now is a very good time to consider exiting your business, the logic must be compelling enough to break through all the previous claims and provide evidence that yes… now really is an excellent time to sell!
The IBBA (International Business Broker Association) and M&A Source, both professional M&A trade associations, recently published the Third Quarter 2018 Market Pulse Report reflecting the state of the M&A industry. The survey was completed by 271 business brokers and M&A advisors that reported 237 completed transactions in Q3.
The following stats reflect the activity of transactions valued from less than $500 thousand to $5 million.
The report states that “year-over-year multiples were generally stable or increasing in most market segments.”
- Median Multiples Paid (SDE)
- <$500K 2.0
- $500-$1MM 2.8
- $1MM-$2MM 3.3
- Median Multiples Paid (EBITDA)
- $2MM-$5MM 4.0
Although seller financing is still incorporated into the deals, sellers are receiving more cash at closing and carrying less risk on the sale.
- 80% of advisors expect market stability to continue.
Sellers’ Preparedness for Sale
Unfortunately, few sellers are taking the time to prepare their company for the M&A process.
- Sellers with no advanced planning 67%
- Sellers with less than one year of planning 23%
Time to close, in months, from start of process
Based on business value:
- <$500K 7
- $500K-$1MM 8
- $1MM-$2MM 9
- $2MM-$5MM 9
As the charts shows, the time to close a transaction is typically 7-9 months, depending on deal size. You can’t sell your business in a day. Forward markets look healthy today, but no one can predict how long market trends will last. The best advice is to engage soon to capitalize on favorable conditions if you want to sell your business within the next year or two.
Top Reasons Sellers Went to Market
Across all market segments, the number one reason to sell your business is retirement, followed by burnout, new business opportunities, health, and family issues.
Success in the M&A market requires the alignment of seller preparation, an accommodative economy, and buyer desire. As noted, the economy and buyer demand are present in today’s M&A market. It’s up to each seller to prepare your business and yourself to capitalize on this climate.
These statistics evidence the favorable conditions making this an excellent time to contact a qualified M&A broker for a review of your company and a discussion of your options to exit your business.
For a pdf of the complete report, including charts, go to https://metrobusinessadvisors.com/wp-content/uploads/2018/12/IBBA_Q3_2018-Executive-Report-1.pdf
Dave Driscoll is president of Metro Business Advisors, a business brokerage, valuation and exit planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or (314) 303-5600. www.MetroBusinessAdvisors.com